Fidelity Investments  recently released a report on 401k participant behavior that details the impact on 401k plans of various courses of action in reaction to the sharp market decline in 2008/2009.  They assessed data within Fidelity-administered 401k plans for the period covering 2008/2009 through Q2 of this year.  They learned that:

• Investors who pulled out of the market completely between October 1, 2008 and March 31, 2009, and stayed out through June, 2011, saw their 401k accounts grow by just 2%. That's for the entire 2-3 year period.
• Those who pulled out but then got back in at some point prior to June 30, 2011 saw their accounts grow by an average of 15%.
• Investors who maintained an asset allocation that included stocks throughout this period saw their accounts increase by 50% over the same period.
• Participants who stopped contributing during the crash averaged an increase of 26% through June, while those who kept making regular contributions saw their accounts grow by 64% on average.

It's important to note that increases included new contributions (in most cases) as well as investment returns.  Nonetheless, it's safe to say that investment returns played a big role for investors who stayed the course.

What does it mean for the future?  It's hard to say.  The future may be different than the past, including all of the other downturns that have occurred in the past century and earlier.  In all of those cases, though, almost all of the investors who had the fortitude to stay the course and kept investing through the downturn would have achieved solid long-term results, assuming the performance of their investments resembled that of the overall markets.  It is worth noting that the S&P 500 has had exactly zero instances of negative returns over a 20-year period.  That doesn't mean that every 20-year period has made millionaires out of all investors, and inflation hasn't been kind to returns in all such periods.  But the stock market has clearly produced better returns than the alternatives over long periods, and investing through a down cycles can create superior results because of the favorability of the purchase price when the market is relatively low.

Fidelity's takeaway from the study?  In the words of James M. MacDonald, their president of Workplace Investing:  "Our analysis reinforces that during extreme market swings, it’s essential for investors not to overreact and remember that investing for retirement requires a long-term view, regardless of their investment horizons."