Has your 401(k) become a 201(k)? That’s a pretty common joke these days, as financial commentators look for new ways to talk about plunging markets—and plunging 401(k) balances.

Yet take a look at the following chart. It shows the change in 401(k) account balances at Vanguard during 2008. (Vanguard is the recordkeeper for several million accounts.)

401(k) balance change, 2008

On the right, you’ll see that fully one-fifth of plan participants saw their balances decline by more than 30%. (If you’re in this category, your 401(k) has, in fact, become a 201(k), or close to it.) On the left, about a third saw their account balances stay flat or rise. Other participants were in the middle, with either modest or somewhat larger losses—but less than a 30% decline.

Here’s another fact: The median, or typical, participant saw a decline of 14%. In a year when the economy and market tanked, major financial institutions disappeared, and the global economic and financial system almost ground to a halt, the typical 401(k) investor lost only 14%.

Why aren’t these numbers more negative? Two reasons.

First, most 401(k) investors don’t have all of their money in the stock market. Second, account balances reflect the impact of investment performance and ongoing contributions. Regular savers may see their account balances shrink—but additional savings can help mitigate those losses.

None of this is meant to minimize the pain of those who have suffered large losses. Far from it. But it does suggest that the dreaded “201(k)” is not a universal worry.

“401(k) account balances down less than everyone expected” may not make a great headline, but it’s reality nonetheless.


• All investments are subject to risks.

• Past performance is no guarantee of future returns.

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