Study Shows 401k Participants' Continued Resilience During Volatile First Quarter of 2009
VALLEY FORGE, PA, June 8, 2009 -- In the face of the U.S. stock market's 44% drop over the 15 months ended March 31, 2009, the 3 million participants in defined contribution plans administered by Vanguard experienced a median decline in their account balance of less than half of that for the period, according to new research from Vanguard.
Vanguard analysis of first-quarter 2009 participant activity indicates that the median balance of participants' accounts fell by 17% from January 2008 through March 2009. About 36% of participants saw their account balances rise or remain flat. Nearly 20% of participants saw their balances fall in a range of 1% to 20%. About three in 10 experienced declines of more than 30% over the 15 months.
"The typical participant's experience was better than that of the overall market because of the benefits of portfolio diversification and ongoing contributions," said Stephen Utkus, director of the Vanguard Center for Retirement Research. "In particular, the effect of regular contributions may be one of the reasons that most 401k participants tend to stay the course and do not alter their portfolios in response to falling markets."
The report also shows that the roiling markets of the January–March period failed to stir most investors into action. Only 6% made changes to their portfolios during the period, continuing the trend that was evident throughout 2008, as reported in a previous study, Inertia and Retirement Savings: Participant Behavior in 2008. Participants who made changes to their portfolios during the first quarter shifted about 0.7% of assets from stock funds to bond funds on an overall net basis.
"Once again, we see inertia as the dominant force in participants' investment decisions, even during periods of historic market volatility," said Mr. Utkus.
In general, most participants remain committed to equities, the study found. The overall equity contribution allocation (the percentage of new money flowing into stock funds) was 69%, down slightly from 73% in 2008 and 74% in 2007. This modest dip was similar to the trend seen in the bear market of 2000–2002.
Data also indicates that participants are not dipping into their retirement nest eggs. The number of participants taking loans from their accounts declined by 12% in 2008, and initial indications point to even less loan activity in the first quarter of 2009. In addition, fewer than 2% of participants took hardship withdrawals in 2008, and the percentage was even lower in first-quarter 2009. (Seasonal patterns in loans and withdrawals from plan accounts make it difficult to compare a quarter's activity against a full year, however.)
"The participant activity patterns we're seeing demonstrate the resilience of most participants and the benefits of sticking to a balanced, well-diversified investment plan," Mr. Utkus said. (Diversification does not ensure a profit or protect against a loss in a declining market.)
About Vanguard
Vanguard is among the leading U.S. retirement planning providers, with nearly $300 billion in assets under management in employer-sponsored retirement plans and almost $206 billion in IRA assets. It provides recordkeeping and investment services to more than 3 million participants and 1,800 plan sponsors in more than 2,200 defined contribution plans. Vanguard is also a major provider of investment, advice, and recordkeeping services to defined benefit plans.
###
Click here for more material dealing with current trends, opinion, news, legislative action, investments, marketing, sales, consulting, and legal issues on 401k plans.
This is a press release provided by the company or its representatives. 401khelpcenter.com, LLC is not the author of this release and is not associated or affiliated with any firm or organization mentioned unless otherwise noted. Use of any information obtained from this release is voluntary, and reliance on it should only be undertaken after an independent review of its accuracy, completeness, efficacy, and timeliness. Reference to any specific commercial product, process, or service by trade name, trademark, service mark, manufacturer, or otherwise does not constitute or imply endorsement, recommendation, or favoring by 401khelpcenter.com, LLC.
