Good news for 401(k) participants—retirement wealth has increased, so much so that balances are higher than before the market downturn, according to study by Vanguard Investments.

Three factors proved instrumental to the growth. First, participants and their plan sponsors kept contributing to their accounts. Second, participants had balanced portfolios, meaning they did not exclusively invest in stocks. And, finally there was the jump in stock prices from their lows in March 2009.

The study, released Wednesday by the Malvern, Pa., company, examined 401(k) balances of 1.7 million participants between September 2007 and September 2009. That’s the time period where the market peaked in October 2007 and then tumbled last year and early this year.

At Vanguard as of September 30th, 60% of those who kept a balance over that two-year period had the same or a higher balance than they had in October 2007. The other 40% had lower balances, though most of those participants’ balances were less than 20% below their October 2007 peak.
 
Stephen P. Utkus, who heads Vanguard’s Center for Retirement Research, said that many investors’ fears about 401(k) accounts are sparked by losses that occurred since the market’s peak in October 2007.

“Our view is that anchoring values at the market’s high-water mark is a behavioral decision-making error,” he said. “Asset values at a single point of time—whether a market peak in October 2007 or a market low in March 2009—should not be used to assess the overall success of an individual’s retirement program spanning decades of work and retirement.”  #