Sticking with 401(k) plans even after painful 2008

Back in October, as the markets went haywire, I wrote about what I was doing with my investments.

I did so because people kept asking me. It was a time of panic with the Standard & Poor’s 500 index falling 38 percent for the year. People wanted to know whether they should buy, sell, hold or fold.

Now, as a business journalist, I don’t give advice and I don’t invest directly in stocks or bonds. But as a wage slave, I do save for retirement in my company’s 401(k) plan using mutual funds. And my response last fall was that I hadn’t changed a thing.

It turns out that’s a pretty typical reaction. Some might call it “resignation.” Vanguard Group, the Malvern mutual fund family, dubs it “inertia” and says it plays a dominant role in retirement decision-making.

Vanguard examined the activity of participants in the employer defined-contribution plans it managed during 2008. (A 401(k) is one type of defined-contribution plan.)

According to a paper by Vanguard research experts Stephen P. Utkus and Jean A. Young, only 2 percent of participants switched their entire portfolio from equities into fixed-income securities during the year. An additional 14 percent made a variety of changes to their portfolio.

That left 84 percent of 401(k) account holders who did nothing, just like me.

The 401(k) is now the dominant system used for retirement savings. But it’s a fragile one, according to the experts at Boston College’s Center for Retirement Research. Many workers don’t partipate in the voluntary plans. Those who do don’t contribute enough and don’t diversify their investments.

I did tweak things this year. I still contribute to my 401(k), but I rebalanced my investment portfolio. Rather, I balanced it for the first time, shifting some assets to bonds and cash after being 100 percent in equities for too long. And I did so after coming to the realization that I am no longer 21 with my whole career ahead of me.

It frustrates me to hear projections that it could take five years for my 401(k) account balance to build back to the level it reached at the beginning of 2008.

However, I intend to keep squirreling money away under the belief that one day I will retire and in the hope that I can afford to enjoy it.