Thursday, December 03, 2009

60% of All Vanguard Accounts and 71% of Target-Date Funds Have Recovered to 2007 Levels

ABC News -- Another major provider of 401(k) accounts says the typical retirement saver now has more money in their account than they did before the stock market began tumbling two years ago. The Vanguard Group Inc. said Wednesday that 60 percent of participants who continued to contribute and stayed invested have more money in their accounts than they had in September 2007 — before the market decline. That means 40 percent of continuous participants have lower balances, although Vanguard said most of them are less than 20 percent below their earlier peak value.

From Vanguard's press release:

The study looked at Vanguard participant balances between September 2007 and September 2009, a period during which the market peaked in October 2007 and declined dramatically in 2008 and early 2009. At Vanguard as of September 2009, 60% of continuous participants (those with a balance in their plan over that two-year period) had the same or a higher account balance than they had at the stock market’s October 2007 peak. The balances of 40% of continuous participants were lower, although most of them had balances that are less than 20% below their earlier peak value.

The study also found that 71% of pure Vanguard target-date fund investors (those investing their entire plan account in a target-date fund) saw their account balances return to or exceed the level of two years ago. The median pure target-date investor’s account increased more than 80% during the period. These positive outcomes occurred regardless of the stated retirement year of the fund.

“The main reason for the recovery in 401(k) balances is ongoing contributions. Both investment returns and contributions jointly determine retirement savings,” said Stephen P. Utkus, head of the Vanguard Center for Retirement Research. “Growth in one of those factors can offset losses in another over a given period. Our evidence suggests that ongoing contributions plus improvement over time in the capital markets may restore many more of these individuals to their pre-October 2007 wealth levels, perhaps more rapidly than previously anticipated.”

HT: Lyle Meier


At 12/03/2009 10:09 AM, Anonymous morganovich said...

isn't this the accounting scheme the beardstown ladies got busted for using? :-p

At 12/03/2009 10:25 AM, Anonymous Anonymous said...

Wow. This has been a perfect test of Bush's "risky stock market scheme" for privatization of Social Security. Of course, the difference is that while private investment accounts have been recovering, Social Security is still on the path to insolvency. At least the current Social Security Ponzi scheme isn't "risky". Where would we be without the Democrats?

At 12/03/2009 10:46 AM, Blogger Unknown said...

not surprising since people were still contributing to these accounts. just means contributions + market returns post 9/2007 were greater than the cumulative market decline. I'd be interested to see if gross contributions are greater than or less than total account balances...

At 12/03/2009 10:52 AM, Anonymous Machiavelli999 said...

Pretty bad ISM numbers this week. Even if you use the "one data point doesn't make a trend" argument, we should not be even at this point of vacillating between expansions and contraction at this point of the recovery.

At 12/03/2009 11:24 AM, Blogger Benjamin Cole said...

This is good news. People will start to feel better and more confident, the longer good news like this keeps coming out.
Forgotten now is how confident and gutsy we were in the 1990s. The long wars and deep recession, bank failures, collapse of icons such as Gm etc etc have sapped our resolve and optimism.
I think the period 2000-2010 will go down as one of America's lost or dark decades. But we are rebounding now.
We were actually reducing national debt as a fraction of GDP in the 1990s. So we can do it-- while posting huge employment growth numbers. We did it then--we can do it again.

At 12/03/2009 11:41 AM, Blogger Benjamin Cole said...

Note to morganovich: See

National debt, as percentage of GDP, shrank after WWII all the way through the Carter years.
Then it grew during the Reagan, Bush1 years, shrank again in the Clinton years, and went up again in the Bush2 years.

We should examine the Clinton years, and his budget, to ascertain why he was able to do what no R-Party president has been able to do since Nixon. I doubt Obama will do it, even if he last eight years.

I contend that the R_party is unable to balance the budget, due to the large numnber of sacred cows embedded in R-districts.

Well more than one-half of federal income taxes are devoted to the Department of Defense, Department of Agriculture, Homeland Security, the VA, debt, and something called "Civilian Defense."

If you want an income tax cut, you either have to borrow money to run those programs, or cut those programs--guess what, we borrow money.

Add to that huge net gain red states enjoy on federal dollars they send to DC---they get back far more than what they send (see Tax Foundation tables).

In short, through the federal budget, urban areas subsidize rural economies. And those rural areas are never going to give up those subsidies, which are basically entitlements. We have the Department of Agriculture growing every year, more than 80 years after the Dust Bowl.

Oddly enough, the party that appears to be "against the federal government' --the R Party --is much better at extracting real gains from it for their constituents. No one says we should subsidize manufacturing for generations on end. We subsidize farmers for generations, and we will into the future. The heavily subsidized ethanol program is nothing more than a rural subsidy program in energy drag, and we will have ethanol with us for the next 100 years at least. The corn states will never, ever give that up.

I think that is why during 2000-2006, we had huge federal deficits, despite R-Party domination of the House, Senate, Executive Branch and Supreme Court. Indeed, the concept of reducing the federal debt as a percent of GDP disappeared from R-Party discourse in those years.

Add to the mess the "entitlement" of the nanny-state home mortgage interest tax deduction, and the D-Party love affair with social welfare spending, and you get the current mess.

It gives me no pleasure to assert the R-Party lacks any semblance of fiscal responsibility, Far from it--I wish I had somebody to vote for.

Ron Paul looks better every day.

At 12/03/2009 11:43 AM, Blogger uclalien said...

Publications such as these remind me of when the National Association of Realtors came out with reports throughout 2007 and 2008 saying the housing market had hit a bottom. In other words, one must consider the source of the information.

Despite the recent run-up, the S&P 500 is still down 26% over the past 2 years. I would be willing to bet that over 90% of these accounts/funds are still down over that time period.

The truly interesting fact is that despite investors adding to their savings/retirements, 40% of all Vanguard Accounts and 29% of Target-Date funds still have fewer funds than in 2007.

At 12/03/2009 12:06 PM, Anonymous gettingrational said...

I have to agree with Benny (Benjamin) for once (broken clock always right twice a day). 2000 through 2009 was a lost decade for the S&P 500 with negative returns!

The U.S. suffered a terrorist attack and two bubbles bursting -- Internet/Tech Mania and Housing as the ATM for consumption in the last decade. Another major factor is the Giant Sucking of wealth to oil producing nations and mercantilist exporting nations. The banks are still not lending to small business and the S&P 500 companies are sitting on almost a trillion dollars in cash. The Federal Deficit keeps growing at ever gigantic Wealth Transferring rates.

The U.S. needs fast decisive action to equalize imports/exports, great reductions in oil imports and an end to budget deficits. Pro-business iniatives in Congress and leadership from the sitting President, without apologies, would be a dream come true.

Note: According to Bernstein Research, over the past eight decades, dividends have produced 43% of stock market gains.

At 12/03/2009 12:07 PM, Blogger pkd said...

Yay dollar-cost averaging! Yay Vanguard!

At 12/03/2009 12:55 PM, Blogger Benjamin Cole said...

Getting Rational--
I always liked dividend stocks. It has been years, but somewhere I once read that stocks paying good dividends show the same capital appreciation as low dividend stocks.
In other words, you get average capital gains, while counting divvies.
I have not seen such a study in a long time, but it would be worth checking out again.
I like to think I am continually right, as opposed to only twice a day--but if I am right only twice a day, that is more than many!

At 12/03/2009 1:29 PM, Blogger Paul said...

"I contend that the R_party is unable to balance the budget, due to the large numnber of sacred cows embedded in R-districts. "

But no words for the Democrats? Are you kidding? Looked at the budget numbers from '06 til now?

The GOP, led by W, of the 2000-06 years was different from the 1994 Republican revolution led by Gingrich. If you doubt that, recall the government shutdown of 1995 that Clinton and the media blamed on the "extremist" Republicans.

At 12/03/2009 1:41 PM, Anonymous morganovich said...


clinton did it by pushing more items off balance sheet than ever before. moving a cost from the budget to the "unfunded liability" column is not a real savings.

preventing companies from running just this kind of scam is why GAAP accounting was instituted.

the government uses a variety of cash accounting that would be illegal for a publicly traded company.

if you use GAAP, the US has not been in surplus since eisenhower.

you seem to feel that there is a lesson from the clinton period, but you're looking in the wrong place.

the lesson is that greenspan ought to be tarred and feathered. his refusal to see and stop the first bubble, and subsequent inflation of new ones, housing, bonds, equities, commodities though egregiously low interest rates is why we have never really recovered from 2000.

clinton made the whole thing twice as bad with CRA etc. this subprime mess is directly his fault, aided and abetted by greenspan's low rates and ludicrous failure to understand asset bubbles. clinton just had the advantage of being the last president not to have to wade through the mess he left.

there's another bubble inflating now. bonds, gold, and equities are all rallying together. that should never happen. the only thing that causes that is massive over liquidity.

it's being driven by a dollar carry trade. watch the tape - when the dollar falls, the bull rages, when the dollar rallies, the whole screen goes red.

this means this market is headed for trouble. you cannot have both continued low rates and a return to economic growth. one of those two has to give or you'll get rampant inflation and an even bigger bubble. a 2 year bond yielding 72 bp is not compatible with a return to growth.

the market is essentially pricing in the fed falling way behind the curve and another bubble, which, given the last decade may actually be a good bet - but this is already a bubble and the fed is already behind the curve.

we're probably safe for the rest of the year - too many gains to protect. but 2010 is going to get sporty. a market simultaneously pricing in a return to growth and low interest rates cannot be right for long...

At 12/03/2009 1:58 PM, Anonymous gettingrational said...

Benjamin, et al., Maybe your right a clock and two wristwatches worth.
Here is a link to some grest "dividend stocks to accumulate now". Stay away from high yielding dividend payers because they are probably being drained of liquid assets by a robber such as a hedge fund.

At 12/03/2009 2:16 PM, Anonymous Benny "Tell It Like It Is" Man said...


What matters is national debt vs GDP, and it shrank under Clinton.

But hey, forget Clinton. I am no Clinton fan. I just think he was the best of a sorry lot, and we can expect no relief from R-Party frauds. I consistently advocate voting for a Third Party.

Looking forward, I think you are way wrong. We can have terrific growth and low interest rates. The reason is the huge amounts of excess capital generated in Europe and Asia.

Capital needs a home. Low interest rates will be a long-term fixture of the global economy for decades. Venture capital funds, private equity funds, real estate funds, hedge funds (that's you!), stock mutual funds, bond funds etc will all bulge with too money money to invest.

This will lead to some headstrong investing, some bubbles and some busts. But overall, good news.

Even in the U.S. there is gobs of capital coming out pension funds, insurance companies and high net worth people.

Capital is cheap and will stay cheap for a long time. Tough investing environment, good economic environment. Better to operate and run a business than be passive investor. Roll up your sleeves dude, and get your pants dirty.

Asia is already growing again, and Europe too. The USA is lumbering along.

I think we are into our next 20-year global boom. The new technologies coming out of venture funds are amazing, and there are global R&D shops now, and information is transmitted instantly via web.

Despite Islamics, the bulk of the world is going commercial.

Never allow the mood at the bottom of a recession or top of a boom to infect you. At the top of each boom, there are those talking about Pax Americana, "everything has changed" etc. At the bottom of every recession, there are those saying the good times are over forever.

In reality, the global GDP will rise three to five percent annually for another 20 years. Plenty of money to be made out there.

And, I hope you do make lots of money!

Bush, Obama--they cannot stop it, though they are making a good effort. My theory is that Bush2 actually was an agent from Chaos, easily undoing the good works of Maxwell Smart.

At 12/03/2009 2:46 PM, Blogger Unknown said...

I think that what the United States government (and other govt's that have followed in their footsteps) has continued to do to try to support the economy is very misguided. They have wasted trillions of dollars bailing out creditors and shareholders of failed institutions with broken business models rather than addressing the structural flaws in the system of too much debt. And this is going to cause big problems down the road with regard to our currency and interest rates, in my opinion. And I think that the gold price breaking out to a new high is a solid indication of the reduction in faith and confidence that people have in governments and their fiat currencies. I recently read a good articles called Gold Price Hits Record as Gold Fever Grips Wall Street that discuss the Federal Reserve's easy monetary policies in order to try to prevent any sort of deflation from occurring and to try to reflate assets prices. I think this article is very helpful for any investor to read because they help to explain the investment implications for the dollar, the gold price, and gold mining companies who I believe will continue to benefit from central banks' inflationary programs.

At 12/03/2009 3:09 PM, Anonymous morganovich said...


it's not national debt/gdp that matters, it's national debt + unfunded liabilities + other national obligations that matters.

current US debt + unfunded liabilities in around $65 trillion. where is that money going to come from? that's $215k for every man woman and child, and probably more like $600k per actual taxpayer.

asset markets and growth are not the same thing. asset markets are running well ahead of reality at the moment, and US economic figures in particular are being driven by massive deficit spending by government.

they are attempting to be the final guarantor for this massive amalgamation of concatenated bubbles. they will fail.

the fact is we never took our medicine in 2000. we could and should have. an equity bubble is easy to clean up; but, instead, we cured a hangover with cocaine. low rates and a behind the curve fed drove a massive housing bubble. CRA insured that credit quality disintegrated at the same time. all this borrowed money drove a couple decent nominal years in the US but left an ugly debt burden when it blew.

this has left the government trying to inflate a new bubble by spending themselves. this is curing a coke hangover with crack.

where do we go next? debt bubbles, unlike equity, are sticky. they don't just go away. leverage kills.

we've managed to drag the ROW with us by exporting our loose money (all the brics need to keep currencies competitive) which often means keeping their own rates much too low. look at india.

the gold/bond/equity triumvirate all rallying has no plausible explanation besides a liquidity bubble.

have you noticed that the time between bubbles is shortening and that they are going up in severity?

the next bursting is not going to be pretty.

there are always way to make money, but don't lose sight of the fact that this has been a helluva rally off the bottom. mistaking getting paid for being right can get awfully expensive.

market signals can get pretty distorted in times of over liquidity.

also watch the small caps. the RUT was not made a new high since sept and is diverging from the SPX. small caps always lead out of a downturn and into the next one...

At 12/03/2009 4:57 PM, Anonymous Benny "Tell It LIke It Is Man" Cole said...


Enjoy your posts, I just disagree.

The US is not the globe. Maybe US will lag.

But Asia is going strong, and will continue to do so. Maybe you want to migrate to Thailand. The future is definitely in the Far East and SE Asia.

While not as gloomy as you about the USA, I do agree that the federal budget will run red ink forever, due to sacred cows within both parties. That is not a pretty picture.

Good luck in your investing.

At 12/03/2009 5:52 PM, Blogger KO said...

"60 percent of participants who continued to contribute and stayed invested..."

“The main reason for the recovery in 401(k) balances is ongoing contributions... "

Seems more a lesson in dollar cost averaging than an indication things are good. Anyone who had gone to all cash in mid 2007 also has a higher balance than before the decline.

I saw Chris Matthews on MSNBC say something like "isn't it good that Bush didn't get to privatize Social Security..." Of course no one was there to point out that in the current system you only have a non-binding promise of something.

How many investments would go 40 years or so and have a negative return like Social Security will have for most people.

At 12/03/2009 5:59 PM, Anonymous morganovich said...


indeed. you don't have to agree at the end of a discussion to gain information from it. i also really like to think out loud. writing down a position imposes disciple on my thinking.

always happy to disagree.

that's what makes a market.

fwiw, australia/NZ seems more interesting to me than thailand.
once the asians start eating more meat, as richer people do, there's going to be a helluva bull market in livestock. (and the aussies have stacks of natural resources as well).

i used to live in sydney. great town.

At 12/03/2009 6:02 PM, Anonymous morganovich said...


madoff securities?

in all seriousness, you hit on an important point: almost no one could do a worse job of managing the SS fund than the government does.

you could easily beat it with darts and a stock page.

At 12/03/2009 6:26 PM, Blogger KO said...

Yeah morganovich, if someone can explain how you can have benefits that are inflation adjusted, but can only "invest" the current surplus at Treasury rates, and come out ok, I'm all ears.

At 12/03/2009 6:40 PM, Anonymous Lyle said...

Of course we all know that Social Security is an intergenerational transfer scheme. Always had been and always will be. Demography has made the idea fail to work as well as it might as the number of workers per retiree has fallen. (This is universally true in the developed world and in 20 years will be true in China). Its not a Ponzi because everyone knew what it was to be a Ponzi scheme the secret can not be let out.
The idea also works because economic growth makes people richer over time. At 2 percent growth rate the economy doubles in 36 years at 3 24 years.
SS is also a disguised welfare stream look up bend points and social security and you will see how the benefit is tilted towards the low income, and it is not a good deal for the high income person. (This was deliberate)
Social Security is social insurance not an investment product always has been and always will be,

At 12/03/2009 8:17 PM, Anonymous morganovich said...

the other thing people forget to consider about social security is that when they set the age to begin benefits at 65, that was the average life expectancy at the time. actuarially, only half of americans lived to collect it at all.

now, with life expectancy at 84 or whatever it is, the average person gets 20 years of benefits.

even without the demography of the baby boom, that would do the system in right there.

the only prayer for it is to raise the age for benefits, means test, and shift to private accounts as quickly as possible.

At 12/03/2009 8:23 PM, Anonymous Benny "Tell It LIke It Is Man" Cole said...


Right, Aussies and NZ'ers well-positioned. If they allow Chinese to buy coastal housing, look out there. Vancouver, anyone?

Thailand can grow anything, more easily than China. Wood, livestock food etc.

Also, I expect China to leapfrog Thailand, and become higher-cost producer soon. So some jobs and factories will flow to Thailand.

My wife is Thai, and I am buying land there to grow eucalyptus. Make paper from that.

Never made to Aussie, always wanted to live in Perth. My guess is that Perth coastal housing will go skyhigh in 20 years.

At 12/03/2009 8:30 PM, Anonymous Lyle said...

Morganovitch, note that the full benefits age is now 66. It will start rising in 2020 to reach 67 in 2025. One could just continue the current trend to make it 68 in 2038, 69 in 2054 and so on. This would also reduce the benefit at 62 even more. So we started the rise with the 1983 act and should just continue it.

At 12/03/2009 8:53 PM, Anonymous morganovich said...


moving the age to 67 is about like tossing a glass of eater on a house fire.

to make any kind of real difference, they would need to move it to 75 or 80, which would still be more actuarially stressful than the program was at inception.

medicare is even worse. at least SS has a capped benefit.

the simple fact is that the US government has made promises it cannot possibly honor.

no matter what, they will wind up being(and already are a huge inter generational theft of wealth.

the problem with democratic decision making on economic and social policy payment matters is that the near term incentive is always to kick the can down the road a bit further and make it someone else's problem. but even that plan comes to an end.

“A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury.” - Alexander Tytler

At 12/03/2009 9:50 PM, Anonymous TheDude said...

My 401k that dropped to a 201K is now a 301K, so, I abide and think all will be cool.

At 12/03/2009 10:53 PM, Anonymous Anonymous said...

More cheap money,...more speculation...

At 12/04/2009 12:11 AM, Blogger KO said...

Lyle said...
.... Social Security is social insurance not an investment product always has been and always will be,

Pensions aren't investment products either, and yet pension fund managers try for capital appreciation so they can meet the promised obligations.

While pensions have a shot at coming out ok, SS is guaranteed not to work as currently organized, barring some massive die off of only retirees or almost retirees. Maybe global warming will swamp Florida suddenly and fix things.


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