IRA Investors Avoiding the Panic Button

[REWahoo]

Interesting study by Vanguard on the equity buy/sell activity of IRA investors between 2007 and 2015. Findings:

Fewer than 1 in 4 investors who owned Vanguard IRAs continuously from 2007 through September 2015 ever made a change that altered the stock allocation in the IRA by more than 20 percentage points in a single month. Of those who did make a change, fewer than half made more than one change.

In a typical month, 0.2% of Vanguard IRA investors made a large move out of stocks, although such moves are more frequent after stock market drops. But even in the worst month, clients were only about 1 percentage point more likely to make a major stock sale.

Even over the entire period of January 2008 through April 2009—which includes the global financial crisis—only about 1 in 15 Vanguard IRA investors made a large reduction in their stock allocation in any month.

Investors who sold out in 2008 must have felt relieved at their decision while they watched the market plummet through the financial crisis. But when you time the market, you also have to figure out when to get back in.

About 40% of those who sold out of stocks during the crisis never made a large purchase back into stocks. Perhaps the crisis simply made these investors reassess their risk tolerance. However, even the "market timers" never returned to their previous stock allocations.

Check out the full article and informataive charts & graphs here: https://personal.vanguard.com/us/in...avoid-panic-button-012016?SYND=RSS&Channel=AN

 

[MBAustin]

Very interesting, thanks for sharing!

I think there is something about buying into Vanguard's approach that makes investors less likely to overreact to market fluctuations.

 

[ERD50]

Yes, interesting!

I bet there is a correlation between not making any big portfolio changes, and not watching/reading the 'financial porn' stations/magazines!

-ERD50

 

[HadEnuff]

I wonder how many small investors moved their portfolios to VG after reading "4 Pillars"..
or being exposed to similar AA strategies. If that was a big number, then they came in believing in that approach.

 

[mathjak107]

morningstar's small investor returns compared to the funds actual returns show the damage is even greater .

the mass money movement really shows the small investor under performing as a group

 

[NW-Bound]

According to an article I happened to spot, in the 3 weeks YTD investors have pulled $7B from stock funds. Last month, Dec 2015, they pulled $48 billion.

The above is really minuscule, compared to the total US market value of $23 trillion back in 2014, while the entire world stock value was $67 trillion.

So, it is not just Vanguard account holders who are not selling. I compute the $48 billion withdrawal in December to be 0.2% of US stock values, matching the number posted by Vanguard.

See: http://finance.yahoo.com/news/went-cash-heres-next-mistake-200000110.html

 

[N02L84ER]

I wonder what percentage of the $48 billion pulled in December could be attributed to RMDs.

 

[hnzw_rui]

I wonder what percentage of the $48 billion pulled in December could be attributed to RMDs.

It's not necessary to take RMDs as cash. Moving shares from IRA to a taxable brokerage account satisfies RMDs just fine.