Financial markets can gyrate wildly, as the past two years have demonstrated to nearly every investor.

But if you haven’t looked at the performance of your 401(k) retirement plan in a good long time, you may be in for a pleasant surprise. Despite the nastiest stock market dive in two generations, one that has left the Dow Jones industrial average about 30 percent below its peak, your retirement account may actually be worth more than before the market mayhem started.

That’s what researchers at the Vanguard Group, one of the nation’s leading managers of 401(k) plans, discovered recently when they looked at the records of 1.7 million of their individual account holders. About 60 percent of all participants in 401(k) and other defined-contribution plans who continued to contribute throughout the two-year period ending in September 2009 had as much in their accounts—or more—as they did in September 2007, when the stock market was closing in on a historic high.

The median account—one at the midpoint of the range of returns—was up nearly 7 percent over the two-year period, according to Steve Utkus, a principal at Vanguard’s Center for Retirement Research.

Of course, even this surprisingly upbeat news means that many investors saw no gains in their 401(k)s as their retirement dates grew two years closer. And unfortunately, the people likely to need those accounts soonest fared the worst.

Losses for many older workers

For workers ages 50 to 64 in Vanguard programs, only about half saw their accounts recover to September 2007 levels. Among the other half, 18 percent lost between 1 and 10 percent over the two-year period, 17 percent lost between 11 and 20 percent, 9 percent lost between 21 and 30 percent, and 3 percent were down more than 30 percent.

The pre-retirement workers who put their 401(k) investments into target-date funds, which automatically adjust the mix of stocks and bonds to become less risky as retirement approaches, did better: 70 percent of those in pure target-date funds found their portfolios had remained the same or gained value over the two-year period.

Utkus found that younger workers fared the best amid the market turmoil, as long as they kept up their contributions. Of those ages 25 to 34, nearly 80 percent saw their account balances rise or remain the same at the end of the two-year period. For workers under 25, the figure was nearly 90 percent.

There’s a simple explanation for why older workers didn’t fare as well as their younger colleagues. If a young worker contributes $200 each month to a 401(k) fund holding $5,000, that provides a much higher percentage boost than $200 put in by an older worker who has $50,000 salted away.

Utkus notes that “it’s only human” for investors to judge the performance of a financial portfolio by looking at its highest peak and lowest valley.

But that’s not the best approach. “Don’t lock in your head your sense of the value of your portfolio at its peak,” he says. “Recognize it’s the accumulation of funds over decades of savings and investment in the market.”

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