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Stocks Pull 401(k) Plans Down A Little

If the last statement from your retirement plan was disappointing, don’t be too worried.

Falling stock prices caused the average balances in 401(k) plans to drop slightly in the second quarter, falling from $91,800 at the end of March to $91,100 by the end of June, according to Fidelity Investments, a Boston-based mutual fund company.

Overall, the average 401(k) balance increased year-over-year, but only by $100, or 0.1%.

Market losses accounted for much of that decline as both the S&P 500 and the Dow Jones Industrial Average were down.

In addition, many older 401(k) account holders had stock allocations that were too high for their recommended age group, notes Fidelity. This group included baby boomers nearing retirement.

“One thing we learned from the last recession is that having too much stock, based on your target retirement age, in your retirement account can expose your savings to unnecessary risk – it’s the hidden danger that many workers are unaware of,” Jim MacDonald, president of Workplace Investing for Fidelity, said in a news release.

“This is especially true among workers nearing retirement who should be taking steps to protect what they’ve worked so hard to save,” he added.

Fortunately, employee and employer contributions helped keep balances afloat.

The average contribution to 401(k) plans over the 12 months ending June 30 (including employee and employer contributions) increased to $10,180 from $9,840 at the end of the first quarter.

That’s the very first time the total savings amount surpassed $10,000, according to Fidelity.

It’s well worth noting that the average 401(k) balance is nearly double what it was at the nadir of the financial market downturn in March 2009, when the average balance was $46,200.

And since 2010, the average 401(k) balance has shot up by 50%, notes Fidelity.

Individual retirement accounts have moved up as well, even as 401(k) balances declined in the second quarter of 2015.

The average IRA balance jumped to $96,300 at the end of June from $94,000 at the end of March. Year-over-year, IRA balances increased by $3,800.

Those averages, pulled from the 13.5 million 401(k) accounts and six million IRA accounts Fidelity manages, are an excellent way to judge the progress of your 401(k), and IRA, retirement plans.

They show why it’s so important to keep investing, even when the markets are down, so that you can profit from rallies like we saw in 2013.

Back then, the S&P 500 was up 29.6%, the largest annual gain in 16 years. The Dow Jones Industrial Average rose 26.5%, its biggest increase in 18 years.

Of course, the typical 401(k) account didn’t rise quite that much because most retirement plans are not invested solely in domestic stocks.

A savvy diversified portfolio includes bonds and other assets that might not grow as quickly but aren’t nearly as volatile as stocks.

“Asset allocation is an important part of any retirement strategy,” MacDonald said. “While you shouldn’t try to time the market, checking your account on a regular basis and ensuring your portfolio is properly balanced can ensure your allocation stays on track.”

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  1. A.Bundy said:
    on July 31st at 07:53 am

    after employer contribution match, i always rollover to a traditional IRA to keep it pretax’ed annually. i dont have time nor the nerves to deal and keep up with stocks, so i always choose the safe money market low return path. yeah, i dont have the tax credit of the tIRA, but i get a free $3000 tax free match. me thinks that’s a better deal than a slightly lower tax bracket.