Molly Woodbridge lost her job in November. Now is about when some people might raid their retirement savings or put them in an ultra-safe CD.
Instead, the 38-year-old TV producer opened an individual retirement account Friday and rolled all of her 401(k) investments, earned over 12 years, into it. What’s more, against the advice of her boyfriend, she kept 70 percent of it in the stock market.
“I’m feeling pretty good about it. The stock market was way down, but I didn’t panic. I’m young enough that I’ll be able to see the upswing,” she said. “We’ve seen the abyss. It shouldn’t get worse than that.”
Stocks are now trading at the levels they were at in early September 2008 before the financial crisis erupted and the Standard & Poor’s 500 index plunged 45 percent over six harrowing months. Nearly two years of gains have erased those losses — though the S&P remains about 19 percent down from its highs in October 2007.
That means it’s probably safe to open those 401(k) retirement-account statements. And if you retreated from the market, you might consider returning.
Investment experts are guardedly optimistic that the market will continue to make gains in 2011 — as genuine signs of economic recovery become clearer — but the outlook for the next five to 10 years is less certain.
So those investing for retirement should be prepared for more ups and downs in the midterm, while holding faith that, in the long term, stock values will appreciate.
“Fundamentally, it’s to your benefit to be optimistic over the long term. Earnings and valuations in global capital markets will rise as we create more wealth,” said Charles Farrell, author of “Your Money Ratios” and an investment adviser with Northstar Investment Advisors in Denver. “But you have to be realistic about the short term now and the next decade. We have some big hurdles to get over in order to be on more solid footing financially.”
Farrell sees a decade of disappointing stock returns as the U.S. government and households get their financial houses in order and reduce their debt loads. He recommends a balanced portfolio of bonds and stocks weighted toward companies that provide reliable dividend income.
Americans appear to be gaining confidence in their retirement investments.
Fidelity Investments, the biggest provider of workplace retirement plans, said the average balance in its 401(k) accounts was $67,600 at the end of September. That was close to pre-recession levels and well above the roughly $47,500 level it hit in early 2009.
The rise reflects a combination of market gains and rising contributions, and doesn’t mean investors have recovered all their losses.
Workers saving for retirement have become more conservative. Stock investments made up 65.4 percent of Fidelity’s 401(k) accounts during the third quarter, down from 78 percent in 2000.
And just 13.1 percent of 401(k) participants put all their assets in stocks during the third quarter, down from 14.5 percent a year ago.
According to the Employee Benefit Research Institute and the Investment Company Institute, the average 401(k) account balance rose 31.9 percent in 2009.
Account balances rose steadily from 2003 to 2007 but fell 27.8 percent in 2008, the groups said.
John Jennings, 34, of Westminster, said it’s a difficult time to be adding more to his 401(k). His employer, a large financial-services firm where he works in operations, cut its contributions. He’s also in school working on a master’s degree in business administration. But Jennings said he doesn’t plan to cut his own contributions or take a more conservative investment approach.
“I’m not going to need the money tomorrow,” he said. “I’ve hung in there, and it worked out for me.”
“Everyone is hesitant”
Still, Jennings is wary about the strength of the economy and the stock market’s ability to perform as in earlier recoveries. Unemployment remains high, the housing market is weak and the disparity between the well-off and less fortunate is growing, he said.
“I think everyone is hesitant right now,” he said.
Investment experts said there are reasons to expect the market to continue its gains in 2011, but the pace will slow.
“The individual U.S. investor who is still looking for a 2003-like skyrocket recovery will continue to be disappointed,” said Denver investment adviser Al Woodward. “The U.S. stock market will continue to ‘march on’ in 2011, albeit chaotically.”
He expects a 7 to 9 percent increase in the Wilshire 5000, a broad index that gained 15.7 percent in 2010.
Vitaliy Katsenelson, chief investment officer at Investment Management Associates in Denver and author of “The Little Book of Sideways Markets,” said the stock market is in the midst of a stagnant cycle that could last another decade.
The current rally is being fueled by government spending and will eventually end, accompanied by higher interest rates and taxes, he said. China’s economy will stumble and bring down other economies, Katsenelson said.
“We’re probably going to have another lost decade for stocks,” he said.
But that doesn’t mean smart investors and money managers will lose money. Katsenelson recommends that investors seek out undervalued stocks and sell them once they’ve appreciated, a strategy he calls “active value investing.”
He recommends health care and large-cap technology stocks as part of a diversified portfolio.
“As long as you’re very diversified and look for value stocks,” he said, “you can still have significant equity exposure.”
Greg Griffin: 303-954-1241 or ggriffin@denverpost.com
Numbers
45% Six-month decline, begun in September 2008, in the S&P 500, the index used by many fund managers and economists
19% How far the S&P 500 is behind its highs of October 2007
13.1% Participants in 401(k) accounts who put all their assets in stocks in the third quarter, down from 14.5 percent a year ago
