Tuesday, February 14, 2012

Stay the Course! 401(k) Savers Who Stuck With Stocks Saw Gains.

"401(k) account owners who maintained their equity allocation and continued to save during the market decline of 2008 and 2009 now have much larger account balances than investors who stopped saving or pulled their money out of the stock market, according to a new Fidelity Investments study"

The study was conducted by Fidelity Investments between Sept. 30, 2008 through June 30, 2011. The sample consisted of nearly 20,500 401(k) plans with more than 11.6 million participants. Here are the highlights of that study:


  • Investors who did nothing during and after the stock market plunge, and continued making contributions in their 401(k) plan as usual saw their 401(k) balance grow an average of 50% .

  • 401(k) participants who withdrew all of their money from the stock market during  the lowest months of the market downturn, and never moved any money back into stocks saw only a 2% increase in their balance, on average.

  • Those who pulled everything out of the stock market, but went back in after the bulk of the market decline saw an average of 25% increase in their 401(k) balance.

  • Participants who stopped contributing during the meltdown, but left their allocation untouched saw an average increase of 26%.

  • Participants who increased their contributions, and left asset allocations untouched saw an average increase of 64%.


These point highlight that even a temporary exit from the stock market is enough to negatively impact the growth of your 401(k).

Investors get anxious when the market gyrates and become downright panicked when it crashes as it did in 2008-2009, and that understandable. Fidelity states that calls from concerned customers spiked again in the summer of 2011. But such volatility shouldn't affect you if you have a proper allocation. In fact, the above bullet points reinforce that staying the course and even doubling down - on a properly diversified allocation - is the best course of action. The second best course is to do nothing at all. The trick is being properly diversified.

Here are a couple of resources to get started on diversification and asset allocation:


Get a better understanding of two different types of risk.

Investing 101 -- The Importance of Sector Diversification

What Does Asset Allocation Mean?

Asset Allocation: The First Step Towards Profit

Introduction To Investment Diversification

6 Asset Allocation Strategies That Work

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