Just a few months ago, experts were saying it would take years for ordinary people to recover the losses they suffered from the horrific stock market decline at the end of 2008 and beginning of 2009. But a new study from Fidelity indicates that many ordinary investors are actually quite well–as long as they didn’t panic and kept putting money into the markets.
How is this possible? Mostly because the huge fall in the stock market created a buying opportunity of a lifetime. Investors who continued to contribute to 401(k) accounts were able to buy stocks and mutual fund shares at very low prices. When the market rallied, the returns poured in.
Here’s the report from the AP:
By DAVID PITT, AP Personal Finance Writer
DES MOINES, Iowa (AP) — If you had a good mix of stocks and bonds in your retirement account and you left it alone through the market madness of the past year, more than likely you’re in good shape now.
A report by Fidelity Investments released Thursday shows an unexpectedly rapid recovery for retirement account holders who stayed invested and continued to contribute.
An analysis of more than 11 million 401(k) participants shows the average account balance up 13 per cent to $60,700 by the end of the third quarter from the end of the prior quarter. The average account increased 28 per cent from end of the first quarter in March, when the stock market hit its low — to the end of September.
The S&P 500 rose 16 per cent during the third quarter — from the beginning of July through the end of September. It rose 34 per cent in the second and third quarters combined.
That upward movement helped replenish many retirement accounts.
Boston-based Fidelity said it also looked at the personal rates of return for individuals to see how the accounts fared when additional contributions from individuals and their company were excluded. The return looks just at an accounts investment performance over a given period of time.
As of Sept. 30, the median one-year rate of return for participants was a positive 0.4 per cent.
“That’s not hugely positive, but think back to March when we were looking at a 35 to 40 per cent hole for some people,” said Michael Doshier, Fidelity’s vice president of workplace investing group.
How is it possible that just a few months ago experts were saying it would take years to recover and now it looks like millions of accounts are already there?
Much of it is because those who kept contributing gained the advantage of dollar-cost averaging. They were buying mutual fund shares or stocks at very low prices, which means they were getting more for their money each month they put more into their account.
In addition, they took full advantage of market recovery from March to September. Those who pulled money out during the market downturn will take longer to get their money back because they’ve missed part of the upward momentum.
It all goes back to a basic rule of retirement investing — it must be viewed as a long-term venture and should not be tinkered with in reaction to short-term market disruptions.
It’s a good lesson to take out of this unpredictable market cycle, Doshier said.
“It’s about staying the course over the long haul and not letting yourself get lulled into a false sense of security in good times,” he said. “And don’t knee-jerk react and make decisions you’ll regret in the depths of crisis times.”
Fidelity also said companies which lowered or suspended their 401(k) match in the past year are starting to reinstate the match.
The company said a survey of plan sponsors shows 27 per cent of employers said they had already reinstated the match or plan to reinstate it within the next 12 months. The trend is particularly true with larger plans of 5,000 participants or more, with 44 per cent of those employers indicating they have either already reinstated or plan to reinstate their match over the next year.