In the market decline that occurred over the two days after the British vote favoring an exit from the European Union, it was claimed by various sources that 401(k) participants had lost over $100 Billion dollars. Quite a claim and a big “number” sure to get peoples’ attention.
I am not saying the number was wrong… as a simple statement of fact it was correct. It can be confirmed and supported by a similar estimate of $104 billion suggested by Jack Van Derhei, Research Director at the Employee Benefit Research Institute.1 On the surface, it certainly looks like a piece a pretty bad news, but looking at this number alone under-reports the actual experience of 401(k) participants for the month of June and since the beginning of the year and leaves some important things not mentioned… such as:
- As of approximately noon today, July 1st and 6 trading days after the British vote, the major market indices are back within striking distance of their levels immediately preceding the vote.
- For the month of June, the average 401(k) balance was up 1-2% (varying factors being age, portfolio construction, contribution levels, and account size.)
- A similar claim can be made for the entire second quarter.
- After a horrible January and February, a volatile May AND the Brexit surprise last week, the S&P 500 and the Dow Jones Industrial Average2 are both a bit higher than they were at the beginning of the year.
I am not trying to say things are “great” and the last couple of years have been frustrating for even the most patient of investors. Having said that, however, a little perspective goes a long way – as must a lifetime investment strategy. The “noise” pushing us to view things only in the “here and now” and in the “short term” will only get louder as communication gets faster. We can’t control that, but we CAN control how we listen. The successful long term investor will listen carefully (or not listen at all) and allow the benefits of a different, bigger picture perspective to keep them on the right path.
1 This and other statistics/statements in this blog sourced from “How Much Did 401(k)’s Lose to Brexit?”; NAPA Net (online article) by Nevin E. Adams, JD, 7/1/2016
2All indices are unmanaged and investors cannot actually invest directly into an index. Unlike investments, indices do not incur management fees, charges or expenses. Past performance does not guarantee future results. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.
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