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401(k) Investors Who Stuck with Equities Experienced 50% Growth

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Boston (September 7, 2011)

By Michael Cohn

A new study from Fidelity Investments found that 401(k) investors who pulled out of the equities market during the 2008-2009 economic downturn experienced only 2 percent growth, while those who maintained their investment strategy eventually saw growth of 50 percent by the second quarter of this year.

The analysis confirmed that even during periods of extremely volatile market activity, investors who maintain a diversified asset allocation strategy and do not pull out of equities investments, or make sudden reductions in their contribution levels, are rewarded when the equity markets eventually rebound.

In the study, Fidelity analyzed participant actions during the market decline of 2008-2009 through the second quarter of this year.  The company found that for 401(k) plan participants who changed their equity allocations to zero percent between Oct. 1, 2008, and Mar. 31, 2009, the lowest months of the market downturn, and maintained this allocation through June 30 of this year, the cost to their account balance was significant. These participants experienced an average increase in account balance of only 2 percent through June 30.

On the other hand, plan participants who dropped to zero percent equity but then returned to some level of equity allocation after that market decline saw an average account balance increase of 25 percent, a sharp contrast to those who stayed with an asset allocation strategy inclusive of equities. These participants realized an average account balance increase of 50 percent during the same period.

Fidelity also examined participants who stopped contributing to their 401(k)s during the same market decline of 2008-2009. They experienced an average increase in their account balances of 26 percent through the end of the second quarter, compared to 64 percent for participants who continued making regular contributions.

1 Comment

Isn't it obvious that those who continued making contributions would see more of an increase in balance than those who quit making contributions? I would like to see growth due to market fluctuations compared.

Posted by: JROG116 | September 7, 2011 7:46 AM

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