Sunday, November 30, 2008

'Nothing' Doings

I wouldn’t for a second suggest that the current financial/economic crisis that we are enmeshed in isn’t “real,” or that the efforts to remedy it thus far aren’t well-intentioned, but it’s hard to shake the feeling that the words put forth to explain the situation—and thus the solutions put forward to redress that situation—are being done by folks desperate to be seen to be doing something, but not quite (at all?) sure what that something should be. And, IMHO, that inclination won’t diminish with a new Administration eager to prove itself. Let’s face it—even when doing nothing might be the best medicine (and I, for one, am at that point), we tend to believe that “something should be done.”

Meanwhile, we have retirement plan participants, most of whom—again—appear to be riding this one out. Oh, there are signs of change on the fringes—some modest reductions in average deferral rates, slight upticks in hardship distributions, and, on particularly volatile days in the market, a bump in transfer activity. Still, for the very most part, participants appear to have taken the “stay the course” message to heart. Nor are they sleeping through the crisis; all the major providers are reporting a significant increase in call center volumes—but participants appear to be doing little more than assessing the damage and checking on their options. That, of course, is widely taken to be a good thing.

I’ve always thought it was interesting that we bemoan the negatives of participant inertia (or sometimes try to turn that negative into a positive via “automatic” solutions)—except when it manifests itself during times of market turmoil. At those times, it’s the rare industry pundit who doesn’t applaud the “wisdom” and calm shown by participants. It’s that one time when “doing nothing” is not a problem to be solved, but an indication of prudence.

“This time” may be different, of course—and the call center inquiries may well suggest that participants are making an active decision to stay put, though it seems to me more likely that those inclined to make a change simply aren’t sure what to do. Human beings may, like an object at rest, tend to remain so—but with this much turmoil still going on after all this time, in my experience, people feel better if they can actually DO something.

"Action" Steps

So, here are some things participants can do:

Get started on rebalancing by changing the investment elections of new contributions, rather than transferring existing balances. It will take longer to realign the entire account, but at least you aren’t realizing those as-yet-unrealized losses.

Increase your current deferral rates. When you think about just how much cheaper those retirement plan investments are compared with a year ago, it’s hard to pass up that kind of bargain. More so if you aren’t yet saving at the maximum level of the match.

Consider automated rebalancing. The vast majority of providers now have in place mechanisms that will, on some preset frequency (monthly, quarterly, annually), automatically rebalance individual accounts in accordance with your investment elections. It’s a good way to keep things in balance without having to worry (or remember) about the best time to do so.

Those 12/31 statements are now only about a month away—but there’s no reason to wait till then to start taking proactive steps on the road to portfolio “recovery.”

- Nevin E. Adams, JD

No comments:

Post a Comment