Financial discipline grows five years after 2008 crisis

Associated Press photo by MARK LENNIHAN -- A recovery in stocks from the 2008 financial crisis is building confidence, but investors responding to a mutual fund's survey appear to be saving more in 401(k) plans, paying down debt and taking greater care to invest wisely.
Associated Press photo by MARK LENNIHAN -- A recovery in stocks from the 2008 financial crisis is building confidence, but investors responding to a mutual fund's survey appear to be saving more in 401(k) plans, paying down debt and taking greater care to invest wisely.

The frugality and investing discipline that the 2008 financial crisis imposed on Americans appear to have led to permanent changes in behavior on money matters, according to a survey by the nation’s second-largest mutual fund company.

Spendthrift ways are unlikely to again become as pervasive as they were before the crisis, Fidelity Investments concluded Wednesday in releasing results of its “Five Years After” survey of nearly 1,200 investors.

Positive behaviors that appear to be now entrenched include saving more in 401(k) plans, paying down debt and taking greater care to invest wisely.

“These tend to be very sticky decisions, because you begin to budget and spend around a higher savings rate,” said John Sweeney, an executive vice president on retirement and investing with Boston-based Fidelity. “People are taking control of their financial lives, and control breeds confidence.”

Survey participants were interviewed over two weeks in February, nearly five years after the government-brokered rescue sale of Wall Street firm Bear Stearns to JPMorgan Chase. That event, in March 2008, is regarded as a tipping point for more tumultuous upheavals that followed, including the September 2008 collapse of Lehman Brothers, which the government allowed to fail.

Housing prices plunged, unemployment spiked and stocks tumbled more than 50 percent from the market’s October 2007 high to its March 2009 low. It wasn’t until last month that the Dow Jones industrial average returned to its pre-crisis high.

Key survey findings include:

Sweeney said the survey findings and Fidelity’s own data on customers’ actions during the financial crisis suggest investors have become more engaged about managing their portfolios. People also have become smarter about managing the risks of potential investment losses and avoiding unsustainable debt levels.

“We can’t control the markets, but we can control how much we save and spend,” he said. “It will help them better weather the next period of market volatility.”

One of the most pronounced changes in investor behavior since the crisis has been growth of savings invested in bonds and bond mutual funds. Bond funds have attracted more than $1 trillion in net deposits since 2008, while money has been pulled out of stock funds for the past six years in a row. Bonds typically generate smaller long-term returns than stocks, but with less chance of short-term losses.

Year-to-date data show cash has finally begun flowing into U.S. stock funds, while bond funds continue to attract money.

Sweeney noted that stocks historically have generated larger returns than bonds, making them a better option to offset the effects of long-term inflation. But he acknowledged bonds are likely to continue attracting retiring baby boomers and others seeking reliable income.

“We’re going to see a long-term systemic shift into bond funds as the population ages and the need grows to reduce risk in their portfolios.”

The survey was conducted for Fidelity by the firm GfK. Fidelity, the second-largest U.S. mutual fund company behind Vanguard based on fund assets, was not identified to the 1,154 survey participants as the sponsor. GfK used its KnowledgePanel sample, which first chose participants for the nationwide study using randomly generated telephone numbers and home addresses. Once people were selected to participate, they were interviewed online. Participants without Internet access were provided it for free.