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Retirement Plan Participants Unphased by Volatility

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Retirement Plan Participants Unphased by Volatility by Steff Chalk

Retirement plan participants invested in U.S. equity markets have been through a volatile year during the calendar year 2018.  With so much information available at one’s fingertips, people tend to worry a lot more than they have in the past.   Can the same be said of how retirement plan participants react when markets take a dive? Will retirement plan participants panic and pull their money out of their investments on a mere downtick or a 500-point plunge on the Dow? Will Human Resources phone lines be jammed by concerned retirement plan participants asking, “What should I do with my investments today?” Are retirement plan participants’ savings safe in the wake of the volatility?  Recent activity and results may surprise you.   Wide-spread panic-prone participants may be a thing of the past.

The S&P 500, a bell weather stock market index, fell precipitously during the final 3 months of 2018 fueled by fears of an imminent recession. It sent Wall Street traders into a tailspin, spurring even more of a sell-off. By contrast, and surprisingly, during that same 3 months, retirement plan participants demonstrated the self-control of investors!  Retirement plan participants remained relatively calm. That’s according to a new study from Fidelity, cited recently in the St. Louis Post-Dispatch. Fidelity found a majority of 401k retirement plan participants demonstrated the self-control of investors.  They continued to save money in their retirement accounts, avoided the temptation to migrate to cash by selling investments on the short-term downward trend.

Investors, these retirement plan participants, held their positions, even while the average 401k balance plummeted 10% from three months earlier. This is largely good news because if investors can hold their positions through years of volatility, stocks have the greatest potential to help them save the most for retirement over time, per the St. Louis Post-Dispatch. According to a spokesperson from Fidelity quoted in the article, based on retirement plan participant reactions — or lack thereof — it appears the messages advisors and educators have been sending over the years – not panicking during stock market downturns – has been heard and heeded.

Agree with it or not, another classic behavioral science principle was likely at work among retirement plan participants at the end of last year, too, that of inertia. From the St. Louis Post-Dispatch article: “People often lean toward making no changes, particularly when it involves something as big and complicated as saving for retirement. Employers and investment professionals have embraced inertia by automatically enrolling workers into being active retirement plan participants in 403b and 401k plans. Also, automatically setting retirement plan participants up to increase their contributions each year and automatically and prudently investing retirement plan participants’ savings into appropriately structured target-date retirement funds. Last quarter, 99.1 percent of all 401(k) participants at Fidelity continued to regularly contribute, the highest percentage since early 2011. Perhaps, the messages of ‘staying the course’ and ‘not panicking during a downturn’ have really made a difference with retirement plan participants. That participants stayed the course instead of panicking at the end of 2018 is certainly encouraging.

Which may mean that articles like this one from Big Think, which touts itself as an online publisher that makes people “smarter, faster,” may be connecting with the 403b and 401k retirement plan participants. In the article, the author writes about her compulsion to check her online retirement account statements daily as markets tumbled at the end of last year. Her advice is, “don’t look.” Sage words, indeed, except, it seems many retirement plan participants were doing precisely that — not paying a lick of attention to their tumbling account balances.

The Big Think article does offer some tips that are good for any investor to keep in mind, no matter what’s occurring in the markets. Use your head, not your emotions; accept the fact that markets go up and down, and that these cycles are totally normal; and, for investors who are really stumped about what to do, seek professional advice. In any case, it seems that retirement plan participants are progressing on the journey of becoming investors.  Retirement plan participants’ avoiding and limiting panic during the recent market volatility is a very good sign, indicating progress!


Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk

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