Don't Peek at Your 401(k) Statement

If you looked only at the weekly change in stock prices, the end of August 2015 would seem to be unremarkable. Stocks, as measured by the Dow Jones industrial average, were up 1.1 percent for the week. That's close to typical: Over the past year, there's been a weekly change of 1 percent or less in the Dow about 50 percent of the time.

But to those glued to market headlines, that week was anything but ordinary. Over that five-day period the Dow recorded its largest ever single-day point decline. Later in the week, stocks rebounded as sharply, posting a record two-day point gain.

The Ostrich Effect

During stock market tumults like those in August, many investors will react in one of two ways.

The first group will have been tempted to immediately check their 401(k) statement and retirement savings plan balances. And of those, some might have been further tempted still to make changes to their investments, if their plans allow daily exchanges between investment choices. Those who did choose to impulsively sell—some $11 billion flowed out of U.S.-based stock mutual funds during the historic week—almost certainly lost money.

The second group—let's call them the ostriches—were presumably unable to bear the pain of loss, so they simply avoided checking the balances in their investment accounts. Recent academic research suggests that investors monitor their accounts, including 401(k) statements, more during rising markets than they do during declining markets.

Although the impulse may be borne out of fear, the ostriches may be onto something. For some time, John Bogle, founder of index fund giant Vanguard Group, has been encouraging investors to shred their monthly or quarterly 401(k) statement. By adhering to Bogle's "Don't Peek" rule, investors won't be tempted to lurch into and out of stocks at exactly the wrong time, something many individual investors do with frightening regularity. According to Bogle, only savers nearing retirement age need to check on their 401(k) investments.

Peeking is a temptation many will find difficult to resist, especially when stock prices are rising. And those who periodically rebalance their stock and bond allocations will need to "peek" to make any necessary asset allocation adjustments. (Bogle isn't a big fan of rebalancing, having referred to it in the past as a relatively pointless activity.) But for those willing to virtually stick their heads in the ground after designing an appropriate retirement savings strategy, benign neglect might be handsomely rewarded.

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