Happy New Year!
We begin this year with a great question about market volatility and what you can say and can’t say to employees. Here’s our first edition of Ask Erick…
Erick, the ups and downs in the stock market have made some of our 401(k) plan participants very nervous, to the point that some have moved their entire accounts into money market funds (during market volatility). Is that a good strategy for retirement savings?
First, be aware that you cannot offer investment advice to participants
; doing so could violate your fiduciary duties. You can, however, offer general investment education. Your nervous participants are correct that 2020 has stimulated a lot of market volatility, and it may continue. But over the years, dollars that stay invested in the stock market have historically done better than dollars that come and go based upon the emotional response of the investor.
One recent blog post commented on research from DALBAR, showing that investors’ desire to “do something” in turbulent times may have resulted in underperforming the S&P 500 by 4% per year between 2009 and 2019
. Similar results came in the bond market, in which the average nonindex investor lagged behind the Bloomberg-Barclays Aggregate Bond Index by 3% during the same time period. Sadly, those investors did not manage to beat the inflation rate during that decade.
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