I’m not always one for clichés, but when it comes to younger investors’ retirement accounts — particularly 401(k)s — the notion of “persistence pays off” really is living up to its moniker.
According to a recent article in Wall Street Journal, many retirement portfolios are recovering quicker than expected from one of the steepest drops in recent memory.
The article cites information from Vanguard Group, as the median 401(k) retirement accounts there as of the end of this September was up 7 percent from where it was two years earlier, when the market was near its all-time high.
While this doesn’t match the overall resurgence of our stock market, which is hovering around 10,000 but still 30 percent lower than its 2007 highs, it is good news for young investors like you and me whose hearts skipped a beat when the markets collapsed and our accounts followed suit.
Personally, I lost 40 percent of my 401(k) contributions when the market was at its worst toward the end of 2008. This was despite the fact that I have a fairly diversified portfolio of stocks, bonds, and cash.
While many decided to either sharply reduce their regular contributions or end them entirely (believe me, I strongly considered doing this), I decided to stick it out and continue buying up shares of the funds I had originally picked at lower prices. I hoped the market would improve.
Well, my hopes and prayers must have worked since the market’s recovery has enabled me to recoup all my losses and gain approximately 15 percent on top of that.
The stock market will undoubtedly go higher and lower as time goes on, but especially for young investors, we should be in it for the long haul, as the market historically has left investors better than how they began. The article says those who have seen the greatest increase in the past several months were ones who continued to invest regularly despite the downturn. You know, buy low and sell maintain high.
Another piece in Wall Street Journal finds many companies that had frozen matching contributions to their employees’ 401(k) accounts are starting to ease their strangleholds, either matching a smaller amount or reverting back to its policies pre-recession.
The moral of these stories? If you have continued to invest in your retirement plans, stay the course! You’re seeing returns now, and even if the market dips here and there, overall it can only get better from here. Obviously as we get older, it makes sense to reallocate portfolios and have a higher percentage in conservative vehicles including bonds and money markets in order to maintain the gains we’ve made by investing heavily in stock for years, but we have plenty of time before we need to worry about that.
If you stopped (or never started to) contribute — start now if you’re able. Even if your employer isn’t starting to match a portion yet, it’s still worth it. If your employer is, you’re losing out on free money. Consider it the raise you never received.