Between the market rally and 401(k) investors’ steady contributions, balances are higher than what they were before the financial crisis hit, according to a
Vanguard found that 60% of investors who were invested in a 401(k) plan for at least two years had the same or a higher balance than at the stock market’s peak in October 2007. Of the remaining 40% of those investors who had lower balances, the majority suffered losses of less than 20% at their earlier peak value.
Also benefitting investors, Vanguard said, was that their portfolios were generally well diversified beyond stocks.
“The main reason for the recovery in 401(k) balances is ongoing contributions,” said Stephen P. Utkus, head of the
The study also found that 71% of Vanguard investors whose portfolio was entirely invested in a target-date fund, regardless of the intended retirement year, saw their account balances return to or exceed the level of two years ago, with the median balance increasing more than 80% in this timeframe.
Jean Young, a senior analyst with the center, said the reason for this strong growth was due to two reasons. “First, most target-date investors have been contributing to their accounts for a limited period, so ongoing contributions benefited the smaller account balances more,” she said. “Second, with the diversification inherent in their target-date portfolios, target-date investors do not have all of their savings invested in equities.”
