The Fidelity survey shows that 401(k) plan participants who maintained their equity allocation in their 401(k) accounts during the most recent downturn now have the largest increase in their account balances:
- Plan participants who dropped their equity allocation to zero between October 1, 2008 and March 31, 2009 and kept it there experienced an average 2 percent increase in their 401(k) account balances through June 30 of this year.
- Investors who changed their equity allocation to zero but returned to some level of equity investment after the downturn showed an average increase in their account balance of 25 percent.
- The clear winners were the investors who maintained their allocation to stocks during the above period; they now show average account balance increases of 50 percent.
So if you're worried about the latest stock market volatility, the message is quite clear: Maintain your asset allocation, and keep contributing to your 401(k) plan. This message is consistent with recent posts by CBS MoneyWatch bloggers Allan Roth and Larry Swedroe.
Of course, this advice is easier said than done, and you often need a strategy to help you stay the course. Here are some ideas:
- Invest in a balanced mutual fund that automatically rebalances your investments for you, selling stocks at highs and buying at lows. One example is the Vanguard Balanced Index fund. Then vow to stay invested during any market downturns, knowing that you have a good strategy in place.
- If you're near retirement, or already retired, invest the next three to five years' worth of withdrawals in ultra-safe vehicles to cover your living expenses. Examples could include CDs, as suggested by Allan Roth. This gives you the assurance that you can wait out stock market fluctuations with your remaining retirement investments.
- Don't read the latest financial news or check your accounts daily. Better yet, laugh at the stock market craziness.
More on MoneyWatch:
- This Time, It Actually Is Different
- Why I'm Buying Stocks Today
- Safe CD to Stash Your Cash
- I Laugh at this Terrifying Market
- Asset Allocation: My Grandfather Had It Right