401(k)s Remain Steadfast Despite Market Conditionsby Tim Manni
Despite some of the worst slumps the stock market has seen in decades, account managers have seen little shift in the way American employees are saving for retirement:
At [Fidelity Investments, Charles] Schwab, less than 1 percent of assets held by 1.4 million retirement customers was shifted in September and October, when the Standard & Poor’s 500 Index fell 9 percent and 17 percent, respectively, according to the company.
The worst bear market in decades has begun to raise concerns among lawmakers and retirement experts alike that the primary retirement tool may be flawed to a certain degree. California Democrat George Miller — who’s heading the House Education and Labor Committee which is examining this issue — feels that the 401(k) leaves investors will little options, and forces them to be “overly dependent on financial markets for their security.”
Yet, what other options do investors have? While some experts will argue that the lack of options is precisely part of the problem, others will explain just how important that stream of cash is to the market:
Richard Thaler, who has studied how investors make decisions, said the inertia seen among 401(k) savers is a powerful force that keeps money flowing even in stressful times, providing some cushion to the market and asset managers.
Fund managers will need the steadiness of retirement investors this year as they battle the decline in assets caused by the stock market slump; the rise in the jobless rate, which could cut employee contributions…
The constant stability of 401(k) contributions, even when markets are slumping, can easily be explained by how they’re set up. Bloomberg’s Charles Stein explains the structure as being set on autopilot. Since money is transferred directly from paychecks, employees (investors) don’t have to make constant decisions regarding the direction of their investment.
Readers: Have you switched your investment strategies since markets have begun to turn sour? If so, what have you done?