There are times when a hands-off approach to investing is the correct one, and the past two years seem to be a case in point, according to a new report.

While the financial world spun into the depths of the global financial crisis in late 2008 and early 2009, automatic features and investor inertia helped the majority of members in Vanguard Group-sponsored retirement plans to not only hold on to their assets, but eventually emerge from the crisis in a better position, the company says.

Vanguard’s How America Saves 2010 report on its 3.2 million plan participants finds that plan member inertia—usually seen as an obstacle to better retirement income—may have had a positive effect during the crisis by preventing them from excessive trading or altering their long-term allocations. In addition, many plan members continued to use automatic features to diversify their assets.

According to the report, the average account balance was $69,000 at the end of 2009, up 23% from year-end 2008.

“Despite the financial maelstrom of the past few years, we’re seeing positive signs for many participants in employer-sponsored retirement plans,” says Steve Utkus, head of Vanguard’s Center for retirement research and co-author of the report. He adds that while there is still room for improvement regarding savings rates and asset allocations, employees are clearly benefiting from features such as automatic enrollment, automatic increases in deferral rates and target-date funds.

Among Vanguard’s 401(k) members, only a very small group was adversely affected by the economic situation—6% suffered declines of more than 30%—along with a modest decline in plan participation and savings rates, and slight increases in loans and hardship withdrawals, the report said.

In 2009, 25% of Vanguard participants were invested solely in a professionally managed automatic investment option: like a managed account program, balanced fund or target-date fund. That’s up from only 7% five years before.

“That increase is important given the historically large proportion of participants who invest unwisely, at least from the perspective of financial professionals,” the report said. “For instance, even in 2009, 11% of Vanguard participants invested all of their plan assets in fixed-income options, while 14% put everything into stocks.”

Read the full report.

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