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By Dan Kadlec
September 13, 2016
Andy Roberts—Getty Images

Most savers take an on-again, off-again approach to putting money away. They contribute what they can, when they can, and hope for the best. But consistent saving gets the best results, new research shows. This points up the value of strategies like automatic contributions and paying yourself first.

The Employee Benefit Research Institute examined 24.9 million 401(k) plan accounts at the end of 2014. Of those accounts, 8.8 million had a balance for four consecutive years and 3.5 million had a continuous balance seven years running. These consistent accounts held vastly higher balances than the typical account.

Looking at accounts with a four-year history, EBRI found that 19.5% had a balance of more than $200,000. That compares to just 10.7% of all accounts. Another 16.1% had a balance between $100,000 and $200,000, compared to 9.5% of all accounts.

The trend is even more visible in the seven-year period, which ran from 2007 to 2014 and included the financial crisis. At the end of that period, 26.9% of the consistent accounts had more than $200,000 and 19.3% had between $100,000 and $200,000. That compares to 10.7% and 9.5%, respectively, among all accounts.

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The consistent accounts also had higher median and average balances, EBRI found. For accounts in the four-year group, the average balance in 2014 was $138,553—nearly double the average of all accounts. The median balance among consistent accounts was $56,653—more than three times the median balance of all accounts.

The survey looked at year-end balances over the periods and eliminated any accounts that did not have a balance at each snapshot. Participants may or may not have contributed continuously. But they all maintained a balance and benefited from asset growth over the period. Individual accumulations vary greatly, depending on how much workers and their employers contribute and how much workers borrow or withdraw from their plan.

The study also points up the futility of jumping in and out of the market, trying to time highs and lows, which no one does effectively for long. The 2011-2014 period produced some outsized stock gains, returning 2%, 16%, 32%, and 13%. In that span, the average 401(k) balance among consistent accounts grew an average 17.3% a year and the median balance grew 19.7%.

Average annual returns were lower in the seven-year period including the financial crisis—but not as low as you might imagine, given the market’s 37% collapse in 2008. Over the entire period, the average balance of consistent accounts grew an average 11.2% a year and the median balance grew 15% a year.

Had you avoided the financial collapse, of course, you would have done better. But even having taken the market’s full fury over that tumultuous period, consistent accounts fared well. By staying invested, and sticking to a contribution regimen, consistent accounts bounced back quickly.

These results have little to do with investment selection. Consistent accounts have about two-thirds of assets in stocks, about the same as all accounts, EBRI found. The main differences were steady saving and fewer loans and withdrawals.

Saving through thick and thin over a long period works. Most 401(k) plans make it easy through automatic enrollment, automatic pre-tax contributions and automatic escalation of contributions each year. Don’t opt out. If these features are not available in your plan you can approximate the strategy with automatic contributions to an IRA. In this long-term game, consistency makes the difference.