By Jonnelle Marte
This may not be a good time to check your 401(k) balance.
The Dow Industrial Average plunged 274 points Friday following a more dismal-than-expected jobs report. The drop — the index’s biggest this year — follows a dismal May in which stocks lost 6%.
Retirement savers appear to have fared slightly better. The average 401(k) balance fell nearly 3% last month, estimates Jack Vanderhei, research director for the Employee Benefit Research Institute. However, the actual returns were likely worse as that figure includes gains from employee contributions.
But while the market’s poor performance over the past month has wiped out all of the Dow’s gains for 2012, retirement accounts have been more resilient. Year-to-date, the average 401(k) balance is up more than 7%. Indeed, 94.5% of 401(k) participants had more money in their accounts on May 31 than they did when the market peaked in October 2007, estimates Vanderhei. That compares to 95.1% at the end of March. “The vast majority of 401(k) participants continue to contribute and do not have major disruptions on their asset allocation,” says Vanderhei. “Most of them will just bounce right back from this.”
That said, investors remain concerned that Greece could exit the Euro zone, a move that could have economic repercussions across the globe, experts say. Investors also have reason to question the strength of the US recovery, given some poor earnings reports, weak job growth and stagnant wages. And some retail investors were further discouraged by the Facebook IPO, which was marred by technical glitches and a significant drop in the price of the stock.
Retirement plan providers largely advise account holders to stay the course and continue contributing to their accounts throughout bouts of volatility. Indeed, many savers have seen substantial gains since the financial crisis, according to data from Fidelity Investments. The average 401(k) account balance was $74,600 at the end of the first quarter, up 8% from the previous quarter and up 62% from the market low at end of the first quarter of 2009.
Advisers say some investors can offset losses due to market volatility by taking a more tactical approach. Greg Carroll, president of Sterling Wealth Management Group in Carlsbad, Calif., says they might consider allocating up to 25% of their portfolios to go-anywhere funds that can move freely between asset classes. The leeway to move into areas with value and out of sectors that are expensive may help investors boost returns at a time when markets alternate between drastic gains and losses, he says. “You need to be strategic with a process that’s not emotion based to navigate these markets,” says Carroll.
Correction: An earlier version of this story incorrectly reported the average 401(k) account’s balance in May and year-to-date.