Guzzo the Contrarian

The Investment Company Institute (ICI) published a paper today entitled Retirement Saving in Wake of Financial Market Volatility (pdf), summarizing results from two surveys they conducted in the past few months. According to these reports, most defined-contribution plan (401(k)) participants have “stayed the course” through these tumultuous times and haven’t unusually reacted to current market conditions.

As reported by ICI, according to the first data-supported survey:

In an exclusive survey of records on 22.5 million participant accounts, ICI found that, despite the decline in account balances caused by the 40 percent drop in U.S. stock markets, the vast majority of savers are staying put. The records, which cover the first 10 months of 2008, show that:

• Only 3.0 percent of plan participants stopped contributing to their retirement plan;
• Just 3.7 percent of participants took any withdrawals from their accounts, including 1.2 percent taking hardship withdrawals; and
• Fifteen percent of participants had loans outstanding, in line with the 13 to 17 percent figures reported since 1996 in annual studies conducted by ICI and the Employee Benefit Research Institute.

Just like ICI does, I find it interesting how the results of the first survey seemed to contradict news reports that suggested investors have reacted to the nearly year-long recession and the sharp drop in stock prices by tapping their workplace retirement accounts, reducing or stopping contributions, or changing how their existing balances or new contributions are invested.

What I also found interesting about this survey is that it tells me that the 40-percent drop in U.S. stock markets and resulting decline in our account balances shouldn’t be attributed to individual investor panic, but perhaps panic on behalf of those who manage our money, the same professionals who tell us NOT to panic and encourage US to “stay the course”.

It also got me to thinking, if the vast majority of individual investors have been “staying the course”, who is causing such volatility and where are all of the significant market losses coming from? Could it be from those hedge fund managers, managed mutual funds, or other money-managers, themselves seeking alpha or attempting to outperform their respective indexes?

Hmm.. maybe we can manage our finances and investments better than others can manage them for us? What do you think? Comments are open.