Most qualified plan investors have beaten the bear market, with 401(k) plan participants slightly better off than individual retirement account (IRA) holders, according to a study of five million households by the Vanguard Group's Center for Retirement Research.

The study shows that more than 80% of 401(k) plan participants and 70% of IRA investors have at least broken even with, if not exceeded, account levels from five years ago at the start of the bear market, the Associated Press reports.

"Most people feel they're making money again, or at least they should," said Stephen Utkus, head of the Vanguard unit. "I'm not sure, psychologically, if we did a poll, people would think they'd recovered. But the numbers show things are looking good."

Utkus warned, however, that investors have not completely beaten the bear, and their behavior may still lead them astray when it comes to saving successfully for retirement. The long-term approach has fared better over the past five years, with the problem being that IRA investors are more hands-on with their money. As a result, they have earned a median of 3.2% over the past five years; 401(k) plan participants, who tend to leave their savings on autopilot, earned a median of 4% during the same period.

During the bear market, IRA investors tended to allocate less into equities. In 2002, these investors put half their new money in stocks. By comparison, the 401(k) plan participants put 71% of their money in stocks.

The study examines 2.6 million 401(k) plan participants and 2.8 million IRA plan investors using Vanguard's mutual funds.

The IRA investors tend to be older and more affluent and conservative than the employee plan savers, and because they actively invest money in their plans more frequently, they tend to be conscious of the state of the market and "much more sensitive to market conditions," Utkus said.

The human factor is dangerous in investing, explained Richard A. Ferri, a fee-only planner with Portfolio Solutions. "When you add subjectivity, you run the risk of market timing. You can and should expect people who are IRA investors, who will be subjective, to underperform the 401(k) investors who just let it ride," Ferri said. "The reason 401(k) investors do better is [that] it's automatic. They don't have to make a subjective decision."

He added that this could hurt on the other end, when 401(k) investors fail to rebalance their portfolios. The failure is one part procrastination and one part counter-intuitive, as rebalancing requires people to invest in equities when the market is down.

The bottom line? In the balance, the 401(k) plan participants clearly won, so Utkus urges IRA investors to do what they do with their employee-sponsored plans.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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