Investors Finally Have Reason for Cheer as Stock Market Has Posted Strong Gains
Sunday, July 26, 2009
Investors saving for retirement have been battered and bruised for months by a stock market that left them with few places to hide. But recent gains have taken the sting out of opening those financial statements and offered a glimmer of hope.
"There's been some substantial recovery in the real numbers that count, which are dollars in savings accounts," said Michael Doshier, a vice president of Fidelity Investments' workplace investing group.
Account balances on 401(k) plans administered by Fidelity grew by 13 percent from the end of March through the end of June, according to the company, which manages $1.36 trillion in assets. Not all of that increase can be attributed to market improvements, as the figure is affected by participants' contributions and withdrawals. But equity gains have been the driving factor, Doshier said.
The Standard & Poor's 500-stock index, a broad measure of the U.S. stock market, gained 4.1 percent last week to close Friday at 979.26. Since hitting a 12-year low on March 9, the index is up 45 percent. The Dow Jones industrial average, an index of 30 blue-chip stocks, has climbed 39 percent since early March, and last week it closed above 9000 for the first time since January.
Fueling the recent gains are signs that the worst of the recession may be over, including upbeat corporate earnings reports and improvement in the feeble housing market.
Stocks rose sharply during the past two weeks as a host of companies issued unexpectedly strong quarterly results, including Ford Motor and manufacturing conglomerate 3M, in large part because of aggressive cost-cutting. The gains led Standard & Poor's to raise its profit forecast for companies in the S&P 500.
On the housing front, investors drew encouragement from the National Association of Realtors report showing that sales of previously owned homes rose 3.6 percent in June to an annual rate of 4.9 million. It's the third consecutive monthly improvement, though the level of sales is still low by historical standards.
Rita Cheng, a financial adviser at Ameriprise Financial in Bethesda, said most of her clients have capitalized on depressed stock prices by continuing to make contributions to their retirement plans during the downturn, using the same amount of money to buy more shares in their mutual funds.
"They continued to get their match" from employers, Cheng said. "They continued to invest when the market was slow, so they were able to buy more shares. Now when the market has come back some, they can see the benefit of having purchased those shares at a lower price."
Despite the recent upswing, U.S. stocks still have a long way to climb to reach their all-time high. The S&P 500 peaked at 1565.15 on Oct. 9, 2007 -- 37 percent higher than Friday's close. That leaves investors with significant ground to make up.
For example, an investment of $10,000 on Jan. 1, 2007, in the Vanguard Windsor fund -- a common option for participants in 401(k) plans -- would have grown to $10,773.22 by Oct. 9 of that year, according to data from Morningstar. One year later, as the recession deepened and financial markets tumbled, that $10,000 would have shriveled to $5,485.40.
By March 9 of this year, the bottom of the market, the investor would have lost 57 percent, and been left with a balance of $4,268.44.