The Wall Street Journal featured an article about retirement accounts rebounding.
If you’ve looked at your investments lately, you might be surprised at how much they have rebounded as the Dow Jones Industrial Average has climbed back above 10000, especially if you’ve got a healthy mix of stocks and bonds and you’ve continued to make new contributions. Even if your portfolio is down, the losses are probably much smaller than you might have feared, given that the broad stock market is still down about 30% from its 2007 highs.
“If you were Rip Van Winkle and had fallen asleep for a year, you wouldn’t have known we had a crisis—and you would have saved a lot of sleepless nights,” says Alexandra Armstrong, a Washington, D.C., financial planner.
Stephen Utkus, a principal with the Vanguard Center for Retirement Research, took a look at Vanguard’s 3.5 million 401(k) and other retirement-savings accounts and found that 60% of those who had accounts on Sept. 30, 2007, showed balances that were flat or up this year compared with two years ago.
I found it fascinating since I’ve done way better than these experts state. I ran some numbers from the recorded net worth I keep with Networth IQ.
Balances as of September
2006-$12,110
2007-$30,050 (a 148% change over 2006)
2008-$31,801 (a 5.8% change over 2007)
2009-$45,397 (a 42.8% change of 2008 and 51.1% over 2009)
See what 4 years of regular saving can do? Even in a lousy market I had about 25% annual returns on my account, primarily due to regular contributions during the down times. What kills me is that dedicating myself to saving over the last 4 years has meant a 275% return, or an annualized return of about 91%. I am sure there is more sophisticated math out there to exclude my contribution amounts and get a more normal rate of return on investment, but the point here is to show you that when you commit to saving, it makes a compelling difference.
In 2006, I worked for a company that provided a small match (50% of the first 5% of salary) and got no bonus, but a huge raise for the next year (~14%).
In 2007, I worked for the same company. I got a small match (2.5% of salary) and a huge bonus (IIRC, 10% of my base).
In 2008, I worked for a new company that provided no match the first year and got no bonus or raise. But my salary went up by ~17% and I got a Roth 401k too.
In 2008, I worked for the same company. I got a great match (6% of salary) and good bonuses (about 7%) and a tiny raise.
I’m glad to hear that 401k matches are coming back. I am super glad to be at a company that didn’t slash the corporate match during the recent lean times. I know that’s been a huge incentive for me to keep my savings up.
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If you started with the $12,110 and finished at $45,397, the return is 55.3%/yr. Wahoo!
Of course, you acknowledge it ignores the deposits. There are simple ways around this, the easiest is to assume the entire year’s deposit is made mid-year. This will get you a reasonably close percent gain with minimal math. If you need help creating such a spreadsheet, just ask.
It’s interesting to see how you got through 2008 with minimal pain. For those of us with decades of savings and high stock proportion, we were badly hurt. 2009 has come back a bit more that half our 2008 losses.
Wish I could say the same. My account has stayed pretty stagnant this year. I think still a loss over the year if you ignore deposits. And I’m losing my job 3 months before I would be vested for my 401k match for the past 3 years. Guess I will just have to make up for it later. I’m wishing I never put money in my 401k and paid off debt instead.
We’re only about 2% below the all time high point of our retirement accounts. Partly it is rebound and partly it is contributions in the last two years. It’s pretty easy to compute your actual rate of return without the contributions as long as you have data on the contributions… It’s misleading to call the account growth “annual return”, though clearly you know that
Congrats you did so well! This is another datapoint that suggests many people haven’t gotten hurt in this downturn, and a lot of people have made A LOT of money during the rebound!
This is why I don’t understand the pessimists. Everybody is making bank, so all is good.
One thing though is that you have a smaller 401K balance than retirees, hence contributing $16.5k/yr makes a bigger difference.
See ya at FS one day!
I’d randomly decided to compute this last week – and sure enough I’m back in the black. I’ve contributed 42500 since 2007, received 5200ish in employer matches and my account value is currently 47500.
I’ve been wrestling with the idea of selling a portion of stock from my retirement portfolio, or at least not putting anymore money into stocks for the short term. My feeling is that the market’s rally will fizzle over the next few months so I can buy into bonds for the short term and buy back into stocks when prices are lower. OTOH, I feel like I should stay the course with my retirement portfolio, since it’s not going to be used for 30+ years. But hey, more stock for the same price is always good. If anyone else is doing this or has done this in the past, I’d love to hear about your experiences.