Speaking of not selling, I find this tidbit quite interesting: the vast majority don’t sell anyway.
Steve Utkus, Director of Center for Retirement Research at Vanguard, wrote in the Vanguard Blog that during the recent volatile days, between Aug. 1 and Aug. 10, only 2% of all 401(k) participants in plans administered by Vanguard made a change to their portfolios. During the volatile October 2008, only 4% made a move. The moves were of course not just one way. So the actual percentage of investors who sold stocks is even smaller.
It’s possible that Vanguard does a better job in educating the participants but it can’t be that much better. Allowing a 2-2.5x increase in the numbers, we are still talking about maximum 5-10% of people making changes to their portfolios in a panic.
Vanguard’s data are also consistent with data from Aon Hewitt 401(k) Index. Hewitt Associates also manages many 401(k) plans. Hewitt tracks the transfer activities of 1.5 million participants, which is a huge sample size. In October 2008, the transfers were way above average, but they still amounted to only 0.10% of assets per day or 2-3% for the month. The transfers were flowing out of stocks only on 57% of the days. On the other 43% of the days, the transfers went into stocks.
Vanguard’s data tracked number of people making transfers. Hewitt’s data tracked dollars transferred from one fund to another. They both show more or less the same result: the vast majority don’t sell in a panic.
[Updated from comments] Here’s another data point. The Investment Company Institute (ICI) is the trade group of all mutual fund companies in the U.S. It publishes data on money moving into and out of all mutual funds. It’s the source of all those “investors withdrew $X billion from stock mutual funds” articles in the news.
ICI reported that investors withdrew $252 billion from all stock mutual funds between July 2008 and March 2009. It’s a huge number. However, as of December 2008, the total assets in stock mutual funds were $3,744 billion (p. 20). Only 7% of the money invested in stock mutual funds went out of stock mutual funds during a serious financial crisis. The vast majority of the money stayed put.
It makes you wonder just who are the intended audience for those “don’t sell” articles when the vast majority of people don’t sell anyway. Perhaps the “don’t sell” message already sank in and they are just preaching to the choir.
It also casts doubt on Dalbar’s story that most people sell low and buy high. Yes some people do that but they are a tiny minority. Most people have most of their money in retirement accounts and they set it and forget it. Not that all of them have great discipline but they just don’t pay as much attention to the market as the financial media want them to, let alone trade their accounts.