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Without 401(k), it Would be Worse

08/11/2011
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As the DOW rides waves of volatility, lurching up and down by hundreds of points, there is one island of stability in this stormy sea – – 401(k). Because we constantly remind participants of the benefits of dollar cost averaging; because we provide them with solutions like target date funds and managed accounts; because inertia is easier than taking action; because participants have been rewarded over time for staying the course, few 401(k) participants market time.  To the shock of some and the dismay of others, 401(k) participants do not panic during times of market volatility. Instead, year after year they invest hundreds of billions of dollars in the stock market regardless of whether markets are going up or markets are going down. They were buyers after 9/11, they were buyers in 2009. They are buyers today. They were holders after 9/11, they were holders in 2009, they are holders today. Their buy and hold behavior augmented by dollar cost averaging has not only benefited them through over a decade of wild economic swings, it has cushioned market declines. I shudder to think what kind of market drops we would have experienced had 401(k) participants not been buying and holding when everyone else was selling. Without 401(k) it would be worse.

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