Several recent studies by the Investment Company Institute show that the volatility of the markets is affecting investor behavior significantly, though it appears that 401(k) owners are resisting the impulse to make sharp changes in their investing strategies.
A joint ICI/Securities Industry and Financial Markets Association study–Equity and Bond Ownership in America, 2008 (http://www.ici.org/pdf/rpt_08_equity_owners.pdf) found that 54.5 million U.S. households owned equities or bonds as of early 2008, or 47% of all U.S. households. While that percentage is up from the 39% surveyed in 1989, it is down from the 57% recorded in 2001. Two-thirds of equity and bond owners reported consulting with an advisor at some point during the 2003-2008 time period. As for risk tolerance, the study found that after the bear market of 2000-2001, the willingness of all age groups to take risk for higher returns fell.
The ICI recently reported that in October, there was a net outflow of $126.85 billion in all long-term mutual funds, with stock funds accounting for $72.29 billion of the total. Total net assets of all funds–including money market funds–decreased 10.2% in October to $9.599 trillion from $10.686 trillion in September.
A separate ICI study released December 19 titled Retirement Savings in Wake of Financial Market Volatility (http://www.ici.org/pdf/ppr_08_ret_saving.pdf) found, however, that most defined contribution plan participants continue to invest in their 401(k) plans and most are not changing their asset allocation. Based on a review of 22.5 million participant accounts over the first 10 months of 2008, the survey found that despite the steep decline in account balances, only 3% of participants stopped contributing to their plans; 3.7% took withdrawals of any kind; 15% had loans outstanding, which ICI said was well within the standard range found since 1996, and 13% had changed the asset allocation of their accounts and 9.1% had changed the allocation of their contributions, which ICI again said was well within the normal range.