I’ve written before about the power inertia exerts on personal investing, in part because I’m a perfect example of it.
I freely admit that I have a boring investment life consisting of mutual funds in retirement plans and cash savings. In part, that’s intentional. I don’t own individual stocks to avoid potential conflicts of interest as a journalist.
But the wealth destruction wrought by 2008 did spur me to rebalance my IRA and 401(k) plan holdings once last year. No drastic changes. I simply wanted to reduce my exposure to U.S. stocks.
Like many other workers, I’d picked the funds when I began investing in my company’s 401(k) plan years ago and may have made changes twice in a decade. Financial planners suggest reviewing your investments at least once a year to make sure they still fit your goals.
So while I’m guilty of a benign neglect of the money I’ve squirreled away for retirement, I did continue to defer income into my 401(k) at the same rate as I did before the market meltdown.
And I have a lot of company in that regard. Many studies have documented the lack of panic by individual investors in 2008. One released by the Malvern-based Vanguard Group earlier this month showed, that while investors tended not to abandon their investment plans, they have shied away from stocks.
That’s different from their response to previous stock plunges, such as the bursting of the technology-stock bubble in the early part of the last decade.
Vanguard said investors added $152 billion to equity funds and just $51 billion in bond funds in 2003, a year when markets began to recover from the tech-stock crash. During the first 11 months of 2009, Vanguard investors withdrew $9 billion from stock funds.
That’s in spite of a stock market rally that took the Standard & Poor’s 500 index from its March 9, 2009, low of 676.53 to 1,115.10 by the end of the year - a rise of 65 percent.
So where were they putting their money? Vanguard bond funds were flooded with $340 billion.
Vanguard said customers who were invested equally in stocks and bonds throughout the 2008 crash and 2009 recovery ended up close to breaking even.