AI stock swings may affect 401(k) savings in the US — CNBC
In the United States, fluctuations in the stocks of companies linked to artificial intelligence may affect retirement savings in 401(k) plans, even if investors have not bought individual shares in such companies or thematic funds. CNBC reports.
According to Morningstar, five technology giants — Nvidia, Apple, Microsoft, Alphabet and Amazon — accounted for about 30% of the S&P 500 index as of the close of trading on Wednesday. Therefore, the performance of a relatively small group of the largest companies can significantly affect the returns of index funds in which part of the retirement savings of millions of workers is invested.
Concentration risk in funds
Villanova University finance professor John Sedunov noted that a slowdown in the development, adoption or use of AI could have indirect consequences for companies included in a typical 401(k) investor's portfolio. Morningstar analyst Zachary Evens explained that a decline in AI or major technology stocks may affect portfolios because of their significant weight in S&P 500 index funds.
At the same time, an S&P 500 index fund does not lose diversification, as it includes hundreds of companies from different sectors. However, investors should consider concentration risk when several large issuers account for a significant share of the index.
More current news is available on the UA.News Telegram channel Telegram.
AI exposure extends beyond big technology
Empower chief investment strategist Martha Norton noted that exposure to AI may not be limited to the shares of the largest technology companies. It may involve chipmakers, companies that provide power supply and support data center operations, as well as other participants in the infrastructure chain, including industrial and small companies.
Such exposure may also be present in target-date retirement funds, which are often the default option in 401(k) plans. These funds typically combine stocks and bonds and gradually become more conservative as an investor approaches retirement, but their stock allocation may include the S&P 500 and other funds with companies linked to AI.
What experts advise investors
Experts advise reviewing fund holdings and the largest positions in a portfolio, as well as assessing whether exposure to a particular stock, sector or fund has exceeded the planned level. If the portfolio structure has deviated from the target asset allocation, rebalancing can return it to the chosen ratio.
Investors approaching retirement or already retired are also advised to keep funds for near-term expenses in relatively stable assets, including cash and bonds. At the same time, moving to a more conservative portfolio may reduce volatility but also lower expected returns.
