Maybe we're not so dumb after all.

Millions of people are kicking themselves for having lost money in the last two years. But some powerful evidence suggests we invest reasonably well. We take age appropriate levels of risk. We also make adjustments to our investments as we learn.

Last year (April 15, 2001, Watch Our Money Move!) I showed how we had started to move out of equities as the market peaked in early 2000. We sold equities--- often company stock--- and purchased GICs (Guaranteed Investment Contracts, the Insurance company equivalent of CDs). We also purchased money market funds and bond funds.

You can find all this information on, the website maintained by human resources consulting firm. Using a large database of company 401(k) plans, Hewitt tracks transfers and exchanges on a daily basis. Every month they post a summary of our collective investment decisions.

Prior to the market peak we had been moving money into equities and moving money out of fixed income investments. We reversed poles as the market peaked in early 2000. Since then we've been moving out of equity and into fixed income.

As you can see from the table below, our biggest transfer of money out in 10 of the 21 months since April 2000 has been company stock. We've moved money into fixed income in 16 of the 21 months
Two Years of Monthly Big Transfers
Month Biggest Transfer In Biggest Transfer Out
January, 2000 Company Stock GICs
February, 2000 Small U.S. Equity GICs
March, 2000 Mid U.S. Equity Large U.S. Equity
April, 2000 Large U.S. Equity Company Stock
May, 2000 GICs Company Stock
June, 2000 Company Stock GICs
July, 2000 Money Market Company Stock
August, 2000 GICs Company Stock
September, 2000 Money Market International Stocks
October, 2000 Bonds Company Stock
November, 2000 GICs Company Stock
December, 2000 Bond Funds Small U.S. Equity
January, 2001 GICs Company Stock
February, 2001 GICs Large U.S. Equity
March, 2001 GICs Large U.S. Equity
April, 2001 GICs Company Stock
May, 2001 Large U.S. Equity Company Stock
June, 2001 Company Stocks Money Market
July, 2001 GICs Large U.S. Equity
August, 2001 Bonds Large U.S. Equity
September, 2001 GICs Large U.S. Equity
October, 2001 Bonds GICs
November, 2001 Lifestyle Pre-Mix Bonds
December, 2001 GICs Company Stock
What does it mean?

We've been reducing risk. We're reducing the most volatile investment in our 401(k) plans--- company stock. We're replacing it with fixed income investments that have far less risk.

The second bit of evidence comes from the Employee Benefit Research Institute, otherwise known as EBRI. In a recent examination of asset choices in their database of 401(k) plans, EBRI found that young participants were more heavily concentrated in equities than older participants.

This is the way it is supposed to be.

They found that participants in their 20's had 77.7 percent of their accounts in equity funds and 8.0 percent in balanced funds. When you consider that 60 percent of most balanced funds is invested in equities, their total equity commitment was 82.5 percent. Thirty-somethings had 83.9 percent in equities by the same measure. After that, equity concentration declined with each decade. It reached 63.3 percent for participants in their 60's.
401(k) Plan Participants Reduce Equity Risk as They Age
Age Group Equity Funds Balanced Funds Bond Funds Money Funds
20s 77.7% 8.0% 7.1% 5.8%
30s 78.7 8.6 6.4 4.7
40s 74.1 9.7 7.7 6.1
50s 67.4 10.8 9.3 8.4
60s 55.8 12.5 13.8 12.4
Source: Employee Benefit Research Institute,
This is exactly what we are supposed to be doing.

The same EBRI analysis also demonstrated what some have called "the menu effect." The menus we are offered influence the choices we make.

Plans that offered Guaranteed Investment Contracts in addition to bond funds and money market funds had higher concentrations of fixed income. Plans with company stock had significant concentrations of company stock.

Significantly, while the "menu effect" was real, it didn't overrun the broad trend. Whatever the menu, plan participants take less risk as they get older.

Bottom line? While some people have been hit pretty hard, most people have had a setback, not a disaster.

Tuesday: OK, How bad was the damage?