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DC participants seem to be getting smarter

The stock market roller coaster that took investors for a ride in early February made for some scary headlines, with steep plunges and rebounds that seemed to suggest the market's steady climb could be wearing a bit thin.

For the millions of Americans with retirement savings in a 401(k) or other defined contribution plan, such headlines had to be disconcerting. But as a Pensions & Investments'story in the Feb. 19 issue noted, plan participants, to their credit, didn't run for the nearest exit. Yes, call volumes and web-based inquiries to record keepers and plan sponsors were up, according to those with whom P&I spoke.

But the expected pattern of investors moving some equity holdings into the safety of fixed income didn't always play out.

At Wells Fargo Institutional Retirement Plans and Trust, trading activity found money moving from equities into balanced funds and target-date funds on Feb. 5, when the Dow Jones industrial average fell 1,175 points and on Feb. 6, when the index gained more than 500 points. Empower Retirement didn't see a recognizable trend to or from any particular strategy.

It's not exactly clear why cooler heads seemed to have prevailed. Human nature being what it is, inertia could have played a role.

But plan sponsors, record keepers and researchers also noted two other factors at work: the increasing use of target-date funds, which might give participants a greater sense of security during periods of market volatility, and stepped up efforts by plan executives and the retirement industry to educate participants about the nature of being a long-term investor.

Given that volatility — largely absent from equity markets for most of the past three years — appears to have returned, it is good to see the growing trend of target-date funds and ongoing education has perhaps helped investors learn to react more slowly, and, hopefully, earn greater returns.