Richer 401ks: Great Trend, Great Lesson

by Marc Bastow | May 27, 2013 7:00 am

While sitting at my desk, wishing away the rain and looking forward to the start of summer, I came across some very promising news from the retirement front: According to recent survey by Fidelity, the average 401k account is up to $80,900[1] as of the end of the most recent quarter.

The number represents a nice 8.4% increase from the same point in 2012, and an outstanding 75% bounce from a low point ($46,200) in March 2009.

It’s no shock that Fidelity attributes the quarterly rise in part to the S&P 500‘s success during the period, but it also noted increased contributions from employees (up to 10.3% compared to 8%) and an increase in catch-up contributions.

A few more points of interest:

• 65% of the first-quarter balance increase came from gains in the equity portion of individual accounts.
• For investors 55 and older (working 10 or more years with their current employer) who stayed invested in the market in 2009, the average balance nearly doubled since 2009, from $130,700 to $255,000.
• For investors 55 and older who dumped equities in 2009 (and it’s a small percentage: 1.6% of the survey sample), the average balance grew 26%, up to $101,000 from $80,200 over those same periods.

In other words, if you abandoned stocks during this admittedly fearful period of time, you also missed out on the chance to profit from the recovery — to the tune of roughly $154,000.

And all of this points toward a conclusion we’ve discussed before: Simply investing in stocks will, over time, provide superior returns[2].

Of course, retirement horizon[3] is such a critical part of the plan.

The financial crisis in 2008-09 was brutal, slashing the market’s value nearly in half. And no one knows what the specific situations might have been for many of the retirees in question — hardships, medical requirements, educational expenses, what have you. So some of that selling might not have been solely panic or fear.

But still, looking out at what might’ve been a 15-year horizon (if you were 55 at the time and would take required minimum distributions at 70 1/2) might have made a few more people think twice before selling out.

Nonetheless, it is gratifying to see the trend in retirement planning heading in the right direction.

Marc Bastow is an Assistant Editor at InvestorPlace.com.

Source URL: https://investorplace.com/2013/05/richer-401ks-great-trend-great-lesson/

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