NEW YORK (AP) Burned by a three-year market downturn, retirement savers are just starting to rebuild their portfolios cautiously.
There have been signs in recent months ''that the gloom at last is starting to lift,'' said Stephen Utkus, director of Vanguard's Center for Retirement Research in Valley Forge, Pa.
But, he said, ''people are still feeling cautious.''
Experts agree that workers who participate in 401(k) and other retirement savings plans have had good reasons to be conservative, choosing bonds and money market funds over stocks. Prices on Wall Street began falling in 2000 and were further hurt by the 2001 recession and Sept. 11 terrorist attacks. Then came corporate scandals and last spring's war in Iraq.
A new study by Vanguard indicates retirement savers weren't as badly hurt in recent years as individual market investors because they tend toward a balanced strategy of buying both stocks and bonds.
The study showed that as of June, the median balance in retirement accounts managed by Vanguard was up 13 percent from the end of 1999 despite the three-year bear market.
That, Vanguard said, ''can be attributed to participants' allocations being 65 percent in equities and 35 percent in fixed income and their ongoing contributions to their plan.''
Still, the 65 percent allocation to stocks is down significantly from the peak of 77 percent in 2000, the study showed. And savers who have joined 401(k) plans this year are considerably more conservative in their allocations, putting just 48 percent into equities, the study found.
''That suggests some are overreacting to the bear market,'' Utkus said.
Conservative investors may have to think about saving more because bonds and fixed-income investments traditionally have yielded less than stocks over time, he said.
Randall Edgington, 48, a vice president for a direct marketing firm in Washington Crossing, Pa., is among savers who moved out of equities during the bear market and is now slowly buying back in through his 401(k) plan. He's got about 35 percent of his money in the stock market now and plans to continue investing until he reaches about 50 percent.
''This is the 'I sleep at night' approach,'' Edgington said, adding that he also has increased the amount he's saving.
Robert Tendler, a financial planner in Wall, N.J., who works with Edgington, said he used to be a firm believer in the buy-and-hold strategy favored by most retirement savers but now believes in proactive management.
''There's more risk, and it has to be managed,'' Tendler said.
''I haven't changed a thing,'' said Arthur Dailey, 42, owner of a woodworking firm in Windham, N.H.
He said he buys mutual funds on a weekly basis and last year even purchased funds that specialize in the hard-hit technology sector ''because they were such a bargain.''
Dailey, who contributes some of the company's profits to his employees' 401(k) accounts each year, said he encourages investment.
''If you truly believe in the U.S. economy in the long run, then the stock market is the place to be,'' he said.
Lori Lucas, a research manager for Hewitt Associates, a Lincolnshire, Ill.-based company that manages retirement plans for large companies, said investor sentiment appeared to change as the Iraq war was winding down and the stock market began what is now a six-month advance.
''Through March, we saw what we were seeing for a long time as the market declined, which was more money moving into fixed income from equities,'' Lucas said. ''Starting in April and month after month through August we're seeing more money moving from fixed income to equities.''
Hewitt's 401(k) index, which measures transfers, showed that in July of last year, 77 percent of transfers were from stocks to bonds. A year later, nearly 60 percent were from bonds to stocks.
Participants in retirement accounts maintained by small- and medium-sized companies also have reduced their domestic and foreign stock holdings over the past three years, to about 45 percent from more than 60 percent in the late 1990s, according to Gregory J. Burrows, a vice president with Principal Financial Group in Des Moines, Iowa.
''We don't want to overinterpret that movement in terms of fear or concern,'' Burrows said. ''There's a lot of riding up and riding down with the market.''
Principal's annual survey of the 401(k) plans it manages indicated that workers and their employers have hung in there:
Plan participation rose 2 percent in 2002 from 2001.
Individuals' savings rate increased to 6.5 percent of salary from 6.3 percent.
Employer discretionary matches rose to 36 cents on the dollar from 35 cents, while fixed match programs held at 37 cents on the dollar.
Burrows believes the improvements reflect, at least in part, the importance of retirement plans to small- and mid-sized companies.
''Employers rely on them in competing for top-quality people and retaining them,'' Burrows said. ''So they're more-vigilant about education and maintaining matches.''
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