2008-09: Investors Really Did Sell Low
Repeated loud warnings by financial advisers fail to reverse the human tendency to panic when the market plunges and to rush in after it’s gone up.
Withdrawals from 401(k)s and IRAs surged between 2001 and 2003 after high-tech stocks declined, but the money went back in in 2005 through 2007 after the S&P500 index had soared nearly 27 percent in 2003 and 9 percent in 2004, according to new research by Thomas Bridges, a graduate student in economics, and Professor Frank Stafford, for the University of Michigan Retirement Research Center.
“They think, ‘I have $500,000, and if I don’t take it out now it’s going to be $50,000.’ It’s a panic mentality,” said Stafford, who was surprised by what they found.
Withdrawals increased again after the 2008-2009 market collapse pummeled investors stock portfolios. The Michigan researchers found they withdrew their retirement savings for a variety of reasons, but primarily to pay mortgages and medical bills and also to make major home repairs.
His take on these grim findings: “These are the guys from Main Street trying to figure out Wall Street, and they can’t do it.”