Vanguard is reporting that 97.5% of its participants made no changes in response to the August volatility. Participants holding a single target-date fund (TDF) traded even less frequently—99.6% of pureTDF investors did not react to the August market volatility by trading, which means only 0.4% of these participants made a portfolio change in August.
Year-to-date, the net movement of money among traders has been generally toward fixed income investments. Nonetheless, even at the height of the August market volatility, there were significant gross flows toward equities.
Vanguard noted that late July and early August were characterized by three distinct events: the debt ceiling debate, the downgrade of U.S. Treasury securities, and a rising number of weaker-than-expected economic indicators. Stock prices were highly volatile during the first two weeks of August. Historically, 1% of stock market trading days are associated with a change in stock prices of greater than +/–3%. During the first two weeks of August, 5 of 10 trading days were characterized by this level of volatility.On a year-to-date basis, 9% of participants have traded and only 2% of pure TDF holders have traded. Trading activity thus far in 2011 appears to be on par with 2009 and 2010, and down from 2008, when 16% of participants traded. As in prior years, most participants did not react to market events.
Vanguard Account Balances
Although stock prices at the end of August were 3% lower than at the start of the year, year to date the median account balance for continuous plan participants rose 6%, according to a Vanguard Research Note. Three-quarters of continuous participants had a higher account balance in August 2011 than in 2010. Account balances have risen as a result of ongoing contributions and the balanced diversification of participant portfolios (most participants do not hold all-equity portfolios). Those most affected by the downturn were more likely to have large equity allocations.
One group of particular interest is pre-retirees—participants age 55–64. Year to date, the median account balance for continuous participants in this age range rose 4%. Three-quarters of these participants saw their account balances exceed or remain at year-end 2010 values.
At the other extreme, 3% of continuous participants age 55–64 saw their account balances decline by more than 30% during the first eight months of 2011. These results are not particularly different from those for participants at other ages.
In terms of pure investment results, excluding contributions or withdrawals, the median participant total return for the eight months ended August 2011 was –1.3% and the average total return was –1.0%.Vanguard analyzed 3.1 million unique participants holding 3.4 million accounts in more than 2,000 plans.