Investment giant Vanguard has released a new report that shows what’s really happening with consumer’s 401(k) balances. The new report released by Vanguard takes into consideration the low in March and the recent run-up in stocks and has found that consumer’s 401(k) balances are doing much better than one might expect.
Vanguard’s report showed that consumers who bailed out of their stock portfolios for safer choices missed most of the recovery that’s occurred this year, but consumers who stayed in their holdings have made a round-trip and are doing just fine. Vanguard stated that 60% of 401(k) holders in its study have balances on-par with what they had two years ago or have even made money.
The stock market hasn’t fully recovered to its previous high, but many consumers have still made money because they have practiced dollar cost averaging, where consumers invest small amounts of money each pay period as they would with a traditional 401(k). Since they were able to buy some shares as the Dow dropped down dangerously close to 6,000, they were able to buy a portion of their portfolio at a significant discount.
The report also highlighted that younger investors have survived the financial meltdown much better than their older counterparts. Individuals that are under 40 typically have smaller account balances and more growth in their account balances because of the deposits they make, whereas older individuals have the most growth from compound interest on their nest egg. Since younger individuals were able to invest through the recession, they were able to buy a significant chunk of their portfolio at a deep discount, whereas older investors simply had to ride the wave.