Many savers held tight despite market doldrums

NEW YORK -- When fear was pumping through the stock market this summer, most retirement savers kept their cool.

So say figures from Fidelity, which could see how individual investors in general behaved by looking at its 13.5 million 401(k) and 6 million IRA accounts as stocks tumbled in New York, Shanghai and places in between during the turbulent third quarter.

The Standard & Poor's 500 index sank more than 10 percent within a week during August, driving the index to its worst quarter in four years.

Even amid the tumult, only 4.9 percent of Fidelity's 401(k) account holders made changes to how their nest eggs were invested, such as selling stocks to move into bonds or cash.

Workers also diverted more of their paychecks into their 401(k) accounts than they did a year earlier, not less -- an average of 8.2 percent of their pay last quarter, up from 8 percent.

"People are starting to get the message," said Jeanne Thompson, vice president at Fidelity Investments. "During volatility, many times, the best course of action is none at all."

That's because 401(k) accounts and IRAs are for long-term savings, even for investors approaching retirement.

And the power of compound interest works best when investments are given time.

For investors who have had a 401(k) account at Fidelity for the last 10 years, about half the growth in their balance has come from investment gains. The other half came from contributions from savers and their employers.

Trying to time the market can hurt over the long term -- and in the short term. Fear among investors hit a high on Aug. 24, when the S&P 500 was in the midst of its fifth straight loss. Fidelity received more than 160,000 calls from its IRA and 401(k) investors that day, close to a record, looking for help on how to manage their investments.

Anyone who sold out of his or her stocks that day has missed out on the subsequent 10 percent rise in the S&P 500 in just over two months.

It wasn't just bravery that pushed so many investors to leave their accounts alone last quarter. So-called target-date mutual funds likely played a big role, too.

These funds take care of how to divvy up a nest egg. They are invested mostly in stocks when the target retirement date is far away, and they move more into bonds as the date approaches.

They've also become the default investment for many 401(k) plans since the government implemented new rules in 2006.

Among the defined-contribution plans administered by Vanguard, 88 percent offered target-date funds last year, up from 75 percent five years earlier.

That means many investors may not even know how much stock they own -- just that they have a target-date retirement fund.

It also is one reason even during the panic-stricken days of the so-called Great Recession, the vast majority of 401(k) account holders held off on changing their investment mix.

"It's the perfect result of working with inertia," Thompson said, "rather than against it."