401(k) fund balances down 20% in 2022 but investors barely flinch

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There is no doubt that 2022 will be a difficult year for investors.

With record-high inflation, economic uncertainty, and aggressive interest rate hikes from the Federal Reserve to combat soaring prices, stocks have been hit hard. All three main stats had the worst year since 2008: The S&P 500 Index down 19.4%, Dow Jones Industrial Average down 8.8% and Nasdaq Composite Index lost 33.1%.

However, most 401(k) plan participants weathered the storm – and many increased their contributions, according to one New analysis from Vanguard it’s a preview of the annual How America Saves report.

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As of the end of 2022, the average participant account balance at Vanguard was $112,572, down 20% from a year earlier, the study found. The average balance — half above, half below — was $27,376 at year-end, down 23%.

At the same time, however, 39% of participants’ deferral rates – the portion of their paychecks that go to their 401(k) accounts – have gone higher, compared to the 9% of investors who have fallen. their contributions. While many people initiate increases themselves, more than half of the increases come from the plan’s annual auto-escalation.

“Despite the economic setbacks, we are pleased to see that the behavior of those in retirement plans remains strong,” said Dave Stinnett, head of retirement strategy consulting at Vanguard. consistent with previous years, and most participants continue to maintain a long-term view.”

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In addition, only 2% of investors in target date fund do any exchange (59% of participants have in those funds). Among those without a target term fund or other professionally managed allocations, only 6% made any trades, a 20-year low, according to Vanguard.

And, despite the increased difficulty of withdrawals, they still make up a small portion of all participants. Last year, 2.8% made such withdrawals, compared with 2.1% in 2021.

“The increase… could be driven by the personal financial position of individuals, with U.S. households facing some tough economic challenges in 2022,” Stinnett said. . “A number of government moves since 2018 have also loosened distribution rules, so we believe that could also be a factor in the increase.”

Inflation, at 6.4% over the past year, remains a problem

Meanwhile, the economic headwinds remain. Latest Inflation shows an increase of 6.4% over the past 12 months – still well above the Fed’s 2% target rate. This suggests additional interest rate hike is on the rise, making borrowing more expensive for consumers and businesses.

“The big question around inflation is whether the Fed can get that under control without losing people jobs and causing further declines in the market,” said certified financial planner. says Douglas Boneparth, president of Bone Fide Wealth in New York.

While all three major stock indexes have been trending up since early January, it is impossible to know for sure if the upward momentum will continue. As of Friday afternoon, the S&P is up about 6% in 2023, the Dow is up 1.7% and the Nasdaq is up nearly 13%.

“We’re starting the year on a positive note… it’s a nice deliverance from the carnage of 2022,” said Boneparth.


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