How Much Did September’s Slide Set Back the Average 401(k)?

September has traditionally been a rough month for the markets—and this one was no exception. But there’s still good news for those Q3 statements.  

The Dow closed September down 2.3%, the S&P 500 was off 3.9% for the month, and the NASDAQ posted a sharp 5.2% decline. 

Indeed, according to the Wall Street Journal, the last time any of those main benchmarks suffered a September as bad as this one was 2011, during the European sovereign debt crisis and the downgrade of America’s triple-A credit rating by Standard & Poor’s.

Not surprisingly, the average 401(k) balance also took a hit. For older (age 55-64) workers with more than 20 years of tenure, it dropped 2.2%, while the average 401(k) balance of younger (25-34), less tenured (1-4 years) workers—where contributions have a larger proportionate impact (and the markets less)—was off 1.5%, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI).[1]

2020 Vision

That said, and despite a stretch of volatility that crimped September returns, the S&P 500 and Dow Jones Industrial Average gained 8.5% and 7.6%, respectively, over the past three months, according to the WSJ. And at September’s end, those indexes recorded the their best two-quarter performance since 2009. Both indexes are up more than 26% since the end of March. 

The average 401(k), which has been climbing steadily since March has risen 9.4% for the younger, less tenured cohort, while the older, longer-tenured cohort is (still) up 6.1% for the quarter. Year-to-date the younger cohort has risen 15.9%, while the more market-sensitive older cohort is 7.6% higher. All of which should help those September 30 statement balances. 

Year-to-date the S&P 500 is up 4.1% for 2020, while the Dow is down 2.7%. 

However, MarketWatch notes that the indexes tend to rise in the following month 70% of the time after losses as severe as September this year (based on the last 10 periods in which the Dow marked a decline of at least 2%, the S&P 500 marked a September slide of at least 3.5%, and the Nasdaq Composite logged a drop in the ninth month of the year of at least 4.5%).

Here’s hoping… 

Footnote

[1] EBRI’s analysis is based on the organization’s huge database of some 26 million 401(k) plan participants in more than 101,000 employer-sponsored 401(k) plans representing nearly $2 trillion in assets. It includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options.