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Investors who abandoned stocks in 2008 saw only meager returns

August 24, 2011

| Money Rates Columnist

Investors who stayed with the stock market through its harrowing 2008 decline and continued to hold equities in their 401(k) savings accounts through this year had an average account balance increase of 50 percent, according to Fidelity Investments.

In a press release, Fidelity, which makes money managing workplace retirement savings accounts, said that investors who hang in there during a volatile market and maintain a diversified portfolio can make some serious loot when the market comes back.

Fidelity didn't make the detailed findings of its analysis publicly available. But the company was clearly trying to keep people from bailing out of the stock market during the current turmoil--in which stocks have plunged and soared and plunged again in reaction to disheartening economic news, including the recent reduction in the United States' debt rating.

During this time, even the best savings accounts and the best CD rates have remained at historic lows, which means that investors looking for a safe place to park their money during the stock market gyrations have fewer options. Many investors, expecting a drop in the stock market during Washington's debate over the debt ceiling, simply moved stock market investments into a checking account, money market account or online savings account to ride out any turbulence.

According to the Fidelity release:

  • 401(k) savings account participants who moved out of stocks between October 1, 2008 and March 31, 2009 and stayed out until June 30 of this year saw their savings account balances increase only 2 percent.
  • Those who dropped out but returned to stocks had balances increase 25 percent.
  • Those who stopped contributing during 2008-2009 increased their account balances by 26 percent.
  • Those who kept making regular contributions increased their balance by 64 percent.

In all, the company examined 7.1 million 401(k) savings accounts. It also noted that more than half of the participants are using Fidelity's target date funds, which offer diversified portfolios based on your projected retirement age, reducing risk as you get closer to leaving the workforce.

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