Investors who have stayed out of equities since the financial crisis have made far less money than those who returned to equities, according to a Fidelity Investments report released today.
Fidelity's review of 2nd quarter 401(k) trends asserts that investors who maintain a diversified asset allocation strategy and don't pull out of the equities market, or make sudden contribution reductions, will, even during the most volatile market periods, be rewarded when the equity markets rebound.
For 401(k) participants who changed their equity allocations to zero percent between Oct. 1, 2008, and Mar. 31, 2009 -- the depths of the financial crisis and market downturn -- and maintained that allocation through June 30 of this year saw an average increase in account balance of only 2 percent. Participants who dropped to zero percent equity but then returned to some level of equity allocation saw an average account balance increase of 25%, Fidelity says. Participants in Fidelity's 401(k) plans realized an average account balance increase of 50% during the same period. Participants who stopped contributing to their 401(k)s during the crisis saw an average increase in their account balances of 26% through the end of the second quarter, compared with 64% for participants who continued making regular contributions.
"Our analysis reinforces that during extreme market swings, it's essential for investors not to overreact and remember that investing for retirement requires a long-term view, regardless of their investment horizons," said James M. MacDonald, president, Workplace Investing, Fidelity Investments.
MacDonald said the volatile market of the past several weeks have forced many investors to evaluate their investment strategies. He said Fidelity has responded with additional resources and educational guidance to help our 401(k) participants make informed decisions for the long term.At the end of the second quarter, Fidelity noted, 401(k) participants contributed an annual average of $5,790 to their plans, up 11% from the same quarter five years ago. More participants have increased their contribution rates than decreased them (6.1 percent vs. 2.7 percent respectively), a positive trend for nine consecutive quarters. Additionally, the Fidelity average 401(k) balance of $72,700 was up 19% compared with five years ago.