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Asset Allocation Helped Relieve Bear Market Effect

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Sept. 12, 2003 — Asset diversification and continuing contributions “generally muted” the effects of poor equity market performance on 401(k) accounts, according to new research from the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI).

Among the findings of the report:

*While broad equity market indexes fell 22% in 2002, the average 401(k) balance fell 7.9% among workers who have maintained accounts since year-end 1999.

*The average balance declined a total of 10.0% between year-end 1999 and year-end 2002 versus a 40% drop in broad equity indexes.

The report also noted that while the average allocation to equity investments declined in 2002 reflecting the performance of equity markets, the vast majority of 401(k) participants with accounts at the end of each year since 1999 appear not to have changed their asset allocation.

Overall, the largest share, 62%, of plan balances was invested directly or indirectly in equities at year-end 2002. Specifically, at year-end 2002, 40% of plan balances were invested in equity funds, 16% in company stock, 16% in guaranteed investment contracts and other stable value funds, 9% in balanced funds, 11% in bond funds, and 6% in money funds.

The new report analyzed asset allocation, account balance, and loan activity information on the 15.5 million — about one-third of all participants — 401(k) plan participants in 46,310 plans in the year-end 2002 database.


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