401(k) Balances Hit All-Time High, Thanks to the Market Rally

With the Dow hovering around 16,000, it's not much of a surprise that 401(k) balances are at an all-time high.

According to Fidelity, 401(k) balances hit an all-time high in quarter three of 2013. This news isn't particularly surprising, since the stock market has been on quite the winning streak. The report indicates that the average 401(k) balance (as of September 30) is more than $84,000. That represents an 11 percent growth over last year.

Not bad. But, it's also not surprising to learn that 72 percent of this growth is due to market gains. I can't imagine what 401(k) balances will show at the end of this quarter if the Dow manages to hold on to its current level around the 16,000 mark.

While this is all very interesting — and the market gains have done wonders for my emergency fund and my Roth IRA, it does present an interesting issue. Are you?too reliant on stocks for your retirement future?

401k balances

Retirement Income Diversity

One of the reasons that many people are still scared of the stock market today is due to the damage done following the financial crisis. Many people lost huge amounts of value in their 401(k) balances.

However, all of that has been recovered — and then some. The lesson isn't that you need to stay out of stocks completely. The lesson is that you need to have a plan so that you aren't selling low when a crash happens to your retirement account.

This brings up the issue of diversity. One of the ways that you can help protect your retirement portfolio is with the help of diversity. Do you you have other sources of income? Part of this is the use of asset allocation to help you by offering a little real estate, some bonds, and maybe even some precious metals. A little bit of asset diversity in your portfolio can go a long way. When stocks tank, you might have some other assets that don't tank along with them. You can sell those high while you wait for stocks to recover.

It's also possible to cultivate other income streams. Consider dividend stocks. The best dividend investments don't stop paying just because of stock market turmoil. Dividend aristocrats kept paying out dividends even through the Great Recession. If you have a portfolio that includes bonds, you'll keep receiving interest from those assets. An income portfolio can be a great help to you during down times.

Don't forget that you might have other options as well. Start a side business now, and you can reap the income benefits over time, or sell it later. Develop such income sources as rental property, creative endeavors (books, music, etc. for the royalties) and even consider consulting or freelancing. You can build other sources of income now that will hopefully hold you over if a stock market crash destroys your balance during retirement. As long as you have something to carry you through the market down cycle, so that you don't have to sell your stocks low, you'll be able be in good shape later — and ready to sell high when the market recovers.

4 thoughts on “401(k) Balances Hit All-Time High, Thanks to the Market Rally”

  1. I think it’s not wise anymore to let your retirement fund ride the waves of the stock market. People lost a lot of money after the financial crisis and should be wary of the fluctuations stock markets face. I personally think it’s better to rely on other forms of savings (banks are safest) where your money and quietly sit and grow over the years. Even bonds are less risky compared to stocks because if a company were to go bankrupt, first priority would be given to it’s creditors (i.e. the bond holders) and second priority goes to it’s owners (i.e. the stock holders).

  2. Nick | Millionaires Giving Money

    I love checking my retirement account when the market starts to rally, it makes everything seem worthwhile even though I’ve got my eye on the long term goal. I like the point you make about how Dividend stocks pay during recessions and it’s certainly something I’ll consider adding to my financial portfolio. Great article, thanks for sharing.

  3. When the markets are down I keep on contributing no matter what, sometimes I even increase my contributions because I think of it as a fire sale. When it rises I love to see it rise, I guess patience and resilience are key. Great post, thanks for sharing.

    1. You really do have to change your mindset about down markets, especially when you are in the wealth-building phase. Otherwise, you sell low and lock in the losses. Market downturns offer the chance to buy low instead.

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