Examining seven periods of extreme market volatility over a period of seven years, T. Rowe Price found that very few retirement plan investors moved out of stocks into cash or money market funds, and this was even more true among those with 100% of their portfolio in a target-date fund (TDF).
“These data show that, hopefully, investors understand the value a target-date investment can provide them over the long term,” says Judith Ward, a senior financial planner with T. Rowe Price. “These investments have built-in expertise, and it seems these investors who don’t exchange are content to let the investments do the work for them instead of trying to take investing into their own hands.”
“When we found that those who had some money in target-date investments still exchanged at almost the same rate of those who had no money in target-date vehicles, that really stood out,” Ward says. “It seems to be an all-or-nothing proposition.”
T. Rowe Price also surveyed plan participants in March 2016, and found that while 48% were “concerned” over the long-term performance of their portfolio in times of market volatility, 74% were not planning to make any changes to their account. In 2015, T. Rowe Price offered one-on-one phone consultations to more than 7,000 plan participants and found that 37% adjusted their current or future asset allocation, with 89% of these people selecting a TDF and 33% moving all of their portfolio into a TDF.
“Overall, this is a good news story,” Ward says. “We’re seeing that plan design can impact participant behavior, and participants don’t seem to be overreacting to market swings. When we do discuss retirement savings with our plan participants, they are more than likely to make changes for the better.”