People who stuck with their investments through the 2008-09 crash had a bigger pay-off than those who made changes.
Reuters reports that Fidelity Investments analyzed 7.1 million 401(k) accounts and found those who changed allocations and pulled out of stocks only saw an average increase of 2 percent. Those who exited stocks and returned saw an average of 25 percent. Meanwhile, investors who didn’t move at all saw an increase of 50 percent.
The lesson to hold steady could hold true during the most recent market slides after the S&P downgraded U.S. credit.
“An awful lot of people have gotten it, they understand it and they built up the intestinal fortitude to stay during these rocky days,” said Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board, which oversees the Thrift Savings Plan.
“If you look at it from a larger perspective – and hopefully people over time can get to that point – you see the wisdom of having a long-term plan and staying with it for the long haul,” Trabucco said.
Debt limit and the G Fund
When the government reached its $14.3 trillion borrowing limit in May, the Treasury Department stopped issuing securities to the Thrift Savings Plan’s G Fund so the government could continue borrowing.
But your G Fund investments were and are still safe, Trabucco said.
When the government reaches the debt limit, the Treasury Secretary – by law – immediately issues securities that “replicate what would’ve been there if issued in an uninterrupted period,” Trabbuco said.
When the debt limit was raised, the Treasury paid the securities’ net interest that would have accrued over that same period. Treasury must also file a report within 30 days of the debt being raised. That report will be posted on the TSP website once the board receives it, Trabucco said.