Will the Dow's Plunge Crush Your Retirement?http://www.fool.com/retirement/general/2012/11/09/will-the-dows-plunge-crush-your-retirement.aspx Dan Caplinger
November 9, 2012
The bull market in stocks over the past four years has been the greatest gift that many retirement investors could ever have asked for. Pulled back from the edge of a financial precipice they might never have recovered from otherwise, disciplined investors have seen their retirement accounts recover most or all of their losses during 2008's market meltdown, as gains of around 100% for the Dow Jones Industrials (INDEX: ^DJI ) and the S&P 500 (INDEX: ^GSPC ) have boosted the fortunes of those who stayed invested in equities.
But a massive sell-off for the Dow following the election has raised the specter of an end to the bull run. The last thing investors want to do is ride their hard-earned gains all the way back down again. Will buy-and-hold followers end up all right, or will the market punish them for their adherence to a long-term investing view?
Record retirement balances
Similar figures from Vanguard confirm Fidelity's findings. Vanguard's average 401(k) balance rose to $85,330, also a record high since Vanguard started looking at its figures 14 years ago.
What's behind the gains?
But if the recent swoon in the Dow turns out to be the beginning of a bigger downward move, will those gains go up in smoke? The answer is probably no, because the market can't take all the credit for rising 401(k) balances.
Contributions to 401(k)s are also responsible for much of their recent growth. Encouragingly, Fidelity found that both workers and employers alike are doing their fair share in boosting 401(k) balances by increasing their respective contributions to their retirement plans. Employees now contribute an average of 7% more to their 401(k) accounts than they did five years ago. Moreover, employers are pitching in, with a 19% jump in the amount they're setting aside on behalf of their workers in the form of profit-sharing contributions and employer matching.
At least on the worker side of the equation, automatic enrollment and escalation programs are behind some of the increased savings rates. But interestingly, Fidelity found that workers tend to save more when they aren't automatically enrolled in a plan, setting aside more than twice the percentage of their salary as plans featuring auto-enrollment