WASHINGTON--Across the board, executives from leading mutual fund companies reported during the Investment Company Institute's General Membership Meeting that investors have held steady during market turbulence, with only 1% to 3% redeeming equity fund shares in the face of huge market drops.
American Funds surveyed its advisers and found that a mere 1% of their clients left the marketsforever in March. At LPL Financial, 1% to 2% got out in March, said Mark Casady, chairman and CEO. Most are staying the course because of the market rebound. Its all about being there to be a great coach for your clients. You cannot overstate the value of advice.
For the most part, retail investors stayed with their allocations, especially in the retirement space, said Mark Fetting, president and chief executive officer of Legg Mason, perhaps because investments are just one of their many concerns during the financial crisis.
In the 401(k) plans that Vanguard manages, 3% of investors ran for the exits in the fourth quarter, versus 0.7% of those in a target-date fund, said Barbara Fallon-Walsh, principal with Vanguard.
And despite the fact that many employers are either cancelling or suspending their 401(k) match, T. Rowe Price has not seen that affect investors contribution rates, said Cynthia Egan, president of retirement plan services at the firm. Less than 2% of assets have moved through this whole period, she said. That has also been the case with the plans that Fidelity manages, said Scott David, president of workplace investing.
Putnam Investments did not experience redemptions until February, said CEO Robert L. Reynolds. The downturn happened so quickly, it took people a while to react. Most hung in there through year-end, he said. In February, equity redemptions were high, but the government really worked the issue, and people realized there wont be a depression.
Fidelity found that it was able to quell investors' concerns just by listening to them. On March 23, when the Dow rallied 500 points, 1.2 million investors contacted the fund company through the web, phone or in person at an investor center. On Oct. 10, when the Dow dropped more than 1,000 points, 2.4 million people contacted Fidelity. Neither time were there many transactions, David noted. Investors just needed reassurance.
Executives also stressed that equity exposure is critical to investors long-term retirement goals. Edward Bernard, vice chairman of T. Rowe Price, underscored the importance of growing a portfolio through equity exposure. For people to say theyll never recover is probably wrong, Bernard said. If you go to all bond and fixed income, your chances of not outliving your money is 7%.
Fetting added, History suggests that if you panic and go to all bonds and cash, you dont do as well. It might feel good in the short term, but it wont help you in the long run.
Reynolds agreed, noting that a recent Employee Benefit Research Institute study showed that only 17% think they will have enough to retire. Anyone who cares about the individual investor should step into that void, he said.