Citing the positive effects of diversification and continued contributions, Vanguard announced that the median decline in the three million defined contribution accounts it administers fell 17% in the 15 months ended March 31, as opposed to the market’s overall 44% decline.

In fact, 36% of participants’ balances either remained flat or increased. Another 20% raw their balances fall between 1% and 20%. Only 33% experienced declines of more than 30% in that timeframe.

“The typical participant’s experience was better than that of the overall market because of the benefits of portfolio diversification and ongoing contributions,” said Stephen Utkus, director of the Vanguard Center for Retirement Research.

“In particular, the effect of regular contributions may be one of the reasons that most 401(k) participants tend to stay the course and do not alter their portfolios in response to falling markets,” Utkus said.

Only 6% of Vanguard’s defined contribution clients made changes to their portfolio in the 15 months between January 2008 and March 2009. “Once again, we see inertia as the dominant force in participants’ investment decisions, even during periods of historic market volatility,” Utkus said.

However, investors have slightly reduced their equity exposure. The average account now holds 69% of its assets in equities, down from 73% in 2008 and 74% in 2007.

Fewer people are taking loans; applications for loans declined by 12% in 2008 and early figures for the first quarter of 2009 show that trend accelerating. In addition, fewer than 2% of participants took hardship withdrawals in 2008. That trend also continued in the first quarter.

“The participant activity patterns we’re seeing demonstrate the resilience of most participants and the benefits of sticking to a balanced, well-diversified investment plan,” Utkus said.

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