By Dan Kadlec
September 1, 2015

As the market was tumbling in late August, retirement account trading spiked, new research shows. Money flowed from stocks to bonds, suggesting a discouraging level of panic on the part of some long-term investors.

Trading was twice the normal pace on Friday, Aug. 21. On Monday, Aug. 24, it increased to seven times the normal pace, according to Aon Hewitt, making Monday one of the busiest trading days on record. Yet trading in 401(k) accounts tapered off as the market regained much of its lost ground in following days, suggesting that those who sold on the two worst days of the 11% market correction may have made the classic mistake of selling low and missing the rebound.

Certainly, the market may tumble again. But it might also keep moving higher. No one knows, which is why the smart move during swift corrections is to do nothing with the assets in your retirement portfolio. This is long-term money. So stick with a long- term approach.

Once things have settled down you can look at your portfolio and make carefully considered changes. Is your asset mix appropriate? Have you rebalanced in the past year? Has your risk profile changed? Will you be retiring sooner, or later, than previously planned? These are important questions—and should be tackled while the markets are calm.

Most folks have learned that holding tight and continuing a regular regimen of contributing to retirement accounts through thick and thin is the key to long-term wealth. Consider that the market has tripled since its recession low, which was a scary time to hold tight. But 401(k) savers who stayed the course long ago made back the losses from that vicious downturn.

The trading activity that Aon Hewitt reported represents less than .2% of net 401(k) plan balances that traded on Aug. 24. So, yes, only a small group paid the price for panic. But millions of savers are vulnerable to this kind of thinking. Just 44% of 401(k) investors say they are confident in their ability to make good decisions, according to a Charles Schwab survey.

A similar number say the materials explaining their plan are more difficult to understand than their medical benefits. Seven in 10 are so baffled and frustrated they want retirement savings to surface as a campaign issue in the 2016 presidential race.

Virtually all workers understand the value of their plan. Nine in 10 would be inclined to turn down any job offer that did not include a 401(k) benefit, and 73% would rather have their portfolio grow by 15% this year than lose 15 pounds off their body, Schwab found. So saving may actually be more difficult than dieting, which is why you want to be careful with the money you manage to tuck into a 401(k) plan. That starts with keeping calm while the market gets rough.

 

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