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How roboadvisors and 401(k)s reacted to the market drop

Ethan Wolff-Mann
Senior Writer

The market’s drop of more than 3% on Wednesday did not send retail investors into a frenzy, as a combination of behavior finance cues, education, and perspective kept people on track.

Fidelity saw a jump of 20% in its trading volume in the afternoon as momentum grew, bringing the market to close on a low note. The Dow fell 832 points while the Nasdaq closed more than 4% lower. However, Fidelity told Yahoo Finance that calls from 401(k) participants were only “slightly higher” than normal, and most people were simply calling for guidance or to see whether they needed to do anything.

A screen above the floor of the New York Stock Exchange shows the closing number of the Dow Jones industrial average, Wednesday, Oct. 10, 2018. The Dow Jones Industrial Average plunged more than 800 points, its worst drop in eight months, led by sharp declines in technology stocks. (AP Photo/Richard Drew)

For all but 401(k) investors nearing retirement, action during big market movements is usually discouraged by financial professionals, as people with long-term horizons should expect to experience market expansions and contractions on their way to retirement. With a long-term view, markets usually go up.

Two of the big roboadvisor players, Wealthfront and Betterment, similarly did not see upticks in log-ins or customer behavior.

“We haven’t seen any major changes in activity given the recent market changes,” Betterment’s Danielle Shectman told Yahoo Finance.

A spokesperson for Wealthfront called it “a very quiet non-event” from their point of view.

“We don’t really see a crazy spike when the market dips like this,” said Wealthfront’s Kate Wauck. “We make sure in our boarding process that people are signing up to be long-term passive investors.”

If these platforms were to experience a rush to sell, both have behavior finance tools and strategies in place to calm investors that might otherwise panic-sell.

“Since we’re not a trading platform, there’s not a whole lot you can do when you log into your account,” said Wealthfront’s Wauck. “But if you go to withdrawal or change your risk score, we’ll show you the impact that would have on your long-term investment before we let you take action. We want you to make sure you’re aware of what’s going on.”

Likewise, Betterment has messaging that would go out to customers and advise them to stay the course.

As of Thursday, much of the bleeding appeared to be stemmed as markets stabilized, leaving the question open to what happens when there’s an even larger drop. But if this rout is anything to go by, at least some investors have a solid handle on the buy-and-hold gospel.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, retail, personal finance, and more. Follow him on Twitter @ewolffmann.

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