Wednesday, October 28, 2009

Dollar Cost Averaging Helps Retirement Plans Recover

Surprise! That 401(k) Account Is Looking Good by Karen Blumenthal reports that the median 401K account at Vanguard Group is up 7% versus two years ago, when the market was at an all time high. The article further notes that the gains are due primarily to people continuing to invest as the market was falling, since the subsequent market advance has given those contributions significant gains. However, those that stopped adding to their accounts were still showing significant losses, especially if they were heavily invested in stocks.

This result is consistent with the experience of the author of Free Money Finance, who had recovered from the market decline and was within 5% of his all time net worth high. On the other hand, since becoming early retirees in October, 2007, our investment accounts are still down about 30% versus the 2007 peak, since we stopped contributing, been withdrawing 4% a year and used another 7% to pay off our mortgage.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial, investment or retirement advice. Please consult a professional advisor.

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