Fidelity Investments, the nation’s largest provider of workplace retirement savings plans, reported Wednesday, May 19, that its average account balance rose 41% to $66,900 by the end of first quarter of 2010. Personal rates of return were a positive 42%.
From the bottom of the equity markets on March 9, 2009, when the S&P 500 hit a 12-year low, average account balances surged more than 55% to $71,600 exactly a year later on March 9, 2010, illustrating how quickly market gains can happen after a period of volatility.
“Over the long run, the tried and true strategies work best when it comes to saving for retirement,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments, in a prepared statement. “Even through all of the volatility of the past couple of years, participants who continued to save in their 401(k) accounts now have a positive return from the start of the downturn in 2008.”
While the vast majority of active participants stayed the course throughout the past 18 months, a small percentage either stopped contributing to their workplace retirement accounts or decreased their equity exposure to zero.
Of the 4.2% of participants who stopped contributing to their 401(k) plan sometime between the fourth quarter of 2008 and first quarter 2009, four out of 10 returned to a contribution rate of greater than zero by the end of the first quarter 2010.
A smaller 1.6% of participants dropped their equity allocation to zero percent between the fourth quarter of 2008 and the end of first quarter 2009. Of this population, six out of 10 participants kept their equity allocation at zero percent through the end of the first quarter of this year resulting in a negative 6.8% change in account balance and an 18-month median personal rate of return of negative 12.7%. Nearly four out of 10 participants (38%) who decreased their equity exposure re-allocated a portion of their holdings back to equities by the end of the first quarter this year.
Adoption of target date funds continued to grow, with more than 49% of all participants holding all or part of their assets in a lifecycle fund by the first quarter of this year. This is up from just 23% in 2005, and only 12% in 2000. Nearly one in five (19%) participants now holds 100% of their assets in a lifecycle fund.