So here's to privatizing Social Security. Should we all be stupid enough to allow ourselves to be placed at the mercy of the always volatile markets we'll likely see more and more days in which our security dwindles until we're living in huts.
Think I'm being dramatic read this from the AP:
Just when they thought it was safe to go back in the water, many 401(k) investors who were regaining their comfort level with the stock market took another hit.
Indeed the strategy paid off for many. The more than 110 percent climb of the Standard & Poor's 500 index since the market bottomed in March 2009 restored some vigor to what had been discouraging account statements. Those who continued to contribute to their 401(k) and stayed invested, saw their balances recover and most were ahead of where they were before the market collapsed.
Then the escalating debt ceiling debate stirred the market throughout July and early August, helping to fuel a 13 percent drop in the Dow Jones industrial average, including heart-stopping days like Monday, when it fell more than 600 points.
It was all just too much for many investors, who flocked to their accounts to get out of stocks.
The investors who lost the most in 2008 were the workers who had spent the longest time building up their accounts — those in their 40s and 50s who had remained in a 401(k) plan for more than 20 years. The majority had recovered their losses and had more money in their accounts at the end of June than they had before the 2008 market collapse.
It's good to know, however, that because most 401(k) accounts have a mix of stocks, bonds and other investments, they typically fare better than the broader market in a downturn.
Consider that the S&P 500 fell 15 percent from June 30 through Monday's close. However, 401(k) accounts monitored by EBRI were down between 6.6 percent and 9.5 percent.
That highlights the importance of having a diversified portfolio that reflects your years until retirement and your personal risk tolerance.
One of the most damaging behaviors retirement investors can engage in is pulling all their money out when markets drop.
This typically means they're locking in losses at the bottom of the market and they often fail to re-invest before a market rebound.
That was highlighted by that fact that those who pulled money out of stocks Monday already lost the opportunity to claw their way partially back on Tuesday alone. The Dow rose 429 points on Tuesday. The swing from the day's to the low was more than 500 points.
Dramatic moves seem to be more the norm these days and investors can probably expect more volatility.
"Corrections are happening faster now, but it's the same thing with recoveries," Bold said.
One positive that might come out of the past week is that call volumes to help centers of 401(k) providers are up indicating a desire to seek advice about what to do.
"Even if people aren't taking action, they're reaching out. They want to know what they should do," said Pam Hess, Aon Hewitt's director of retirement research.
Aon Hewitt research released a few years ago indicated that investors who sought help improved their annual performance by 1.86 percent. The research will be updated in about a month to include 2009 and 2010 behavior. Hess said the results will show dramatic improvements.