Top of Mind

Putting Retirement Plan Losses in Perspective

I’m not thrilled with the recent market volatility, and I suspect that you’re not either! Like many, my retirement plan account has suffered, and, as someone in my 50s, this is not great news. However, it has not suffered as much as the Dow Jones Industrial Average (down 25.7% year-to-date, as of 3/25/20). I don’t attribute this to my investment prowess, but rather to diversification. One of the tenets of diversification is the smoothing of returns, which means investors may not earn as much money in the good times, but they don’t lose as much when things get tough.

In retirement plans, there is also the added benefit of dollar-cost averaging, which means that there are periodic purchases of investments from employee and employer contributions. Thus, shares are purchased at the peak of value, the depth of value, and everywhere in between. And, if investors are regularly making the same dollar contributions, they are buying fewer shares per unit of an investment when the costs are higher and more shares per unit when the costs are lower. Thus, account balances will not increase as much as markets increase but will not go down as much as markets fall, either.

I’m also comforted by the fact that I, and many of you, have been through this before. Recent history reminds us that the Dow lost 54% of its value from October 9, 2007 to March 9, 2009, settling at 6469.65, a point it had not seen since the mid-1990s. The market, in three words, was bad, bad, bad. We all know what happened next–the market came back with a vengeance! Other bear markets have revealed a similar pattern of sufficient recovery, where over the long term the stock market outperformed fixed income investments. Of course, there is no guarantee that will happen this time, but history is on our side.

I am also comforted by the fact that my retirement plan loss is not a real one, until I sell my shares - something I am not planning on doing anytime soon–since that would mean taking a distribution. Until I actually take a distribution, presumably in retirement, all of my losses are “paper” ones. It is the retirement plan balance at the time of distribution that matters. The rest, including massive market movements, is generally just noise.

What is the ideal strategy to achieve this? Participants should save as much as they can, starting as early as they can. Through good markets and bad, that has been a proven formula for success.

Do you have any thoughts on the current market situation and retirement plans? Let me know on LinkedIn, Twitter, or at

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

Investment products available through Cammack LaRhette Brokerage, Inc.
Investment advisory services available through Cammack LaRhette Advisors, LLC.
Both located at 100 William Street, Suite 215, Wellesley, MA 02481 | p 781-237-2291