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Published on: 10/18/2022

Why Your 401(k) is Losing Money — and What You Can Do About It

If you’ve been keeping an eye on your retirement accounts, you might have noticed that your 401(k) is losing money and has been performing a little worse than usual lately. In fact, according to Fidelity Investments’ Q2 2022 analysis, the average 401(k) has lost about 20% of its value in the past year. What can you do if your 401(k) is losing money? 

The first thing you should do is stay calm. It’s normal for the stock market to go up and down, which can result in your 401(k) going through ups and downs as well. Remember that your 401(k) is a long-term investment and you shouldn’t make any rash decisions based on short-term market fluctuations.

In this article, we’ll discuss some of the reasons your 401(k) may be performing so poorly in the current market and advise on the best ways to protect your retirement savings.

Why am I losing money in my 401(k)?

The stock market is constantly fluctuating and, lately, it’s been trending downward. The market crash in February 2021 was the worst single-day drop for the Dow Jones Industrial Average since the Great Depression and it caused many 401(k) plans to lose money.

While the stock market has been slowly recovering since then, it’s still not back to where it was before. So if you’re wondering why your 401(k) is down, the stock market is likely the reason.

Other reasons may include:

  • Your asset allocation may be off
  • You may be paying too much in fees
  • Your investment choices may be poor
  • You may have cashed out your 401(k)

If your 401(k) is down, review your asset allocation and fees with a financial planner who specializes in high-net-worth wealth management and make sure that your investments are diversified. Doing so can provide you with some protection and peace of mind if one investment dips lower than the others.

What do I do if my 401(k) loses money?

If your retirement accounts are losing money, stay calm and remember that fluctuations in the stock market are normal. The market will go up and down, but over time, it has typically trended upwards. Therefore, the best thing you can do if your 401(k) is losing money is to diversify your portfolio and stay invested for the long term.

However, if you’re looking for specific 401(k) advice in the current market, there are a few things you can do to protect your 401(k) from further losses.

1. Review your asset allocation 

Asset allocation occurs when you spread your money among different types of investments, such as stocks, bonds, and cash. This diversification helps to protect your money in the event that one type of investment loses value.

For example, if you were to invest your money in both stocks and bonds (a diversified portfolio) and the stock market crashed, your bonds may still hold their value or even increase in value, meaning you may not lose as much money overall. Whether or not the market is down, it’s a wise financial move to ensure that your portfolio is diversified and that you’re not too heavily invested in any stock or sector.

2. Consider rebalancing your portfolio

Rebalancing your portfolio refers to selling some of your investments that have lost value and using the money to buy other investments that may be doing better. The best 401(k) investments in the current market may be different than they were a year ago.

If you’re heavily invested in stocks, you may want to consider selling some of your stock investments and buying bonds instead. Or, if you’ve invested in a particular sector that’s not doing well, you may want to sell those investments and buy stocks in a different sector.

Continue Reading: Where is the safest place to put your retirement savings?

3. Stay the course

It can be tempting to cash out when you’re losing money, but this is typically not a good idea. The stock market will eventually rebound and if you cash out now, you’ll miss out on those gains. You can learn more about capital gains tax in Texas on our blog or schedule a consultation with an Avidian advisor to discuss Houston tax planning strategies. 

4. Review your expenses

Many 401(k) plans have high fees and these fees can add up over time, eating into your returns.

If you’re unsure how much you’re paying in fees, check with your human resources department or the retirement plan administrator. You may be able to negotiate lower fees if you know what the other options are charging.

Should I stop contributing to my 401(k)?

So you’re saying I should stay the course, but should I stop contributing to my 401(k) when the markets are so turbulent?

Whether or not you should stop contributing to your 401(k) will depend on your unique financial circumstances. It would be wise to discuss your options with a financial advisor.

However, generally speaking, you should continue to contribute to your 401(k). By doing this, you’ll be taking advantage of dollar-cost averaging, which is when you buy more units of an investment when the price is low and fewer units when the price is high. When you do this over time, you end up paying the average price for the investment, smoothing out the highs and lows. Check with your advisor first to see if this path is right for you. 

Worried about your 401(k)? Avidian Wealth Solutions can help.

When the stock market is at a low, you may notice that your 401(k) is losing money. We understand that this may cause some concern, especially if you are retired or nearing retirement, but we want to remind you that stock market lows are often followed by market highs and to stay invested. 

If you’re still worried about your 401(k), or if you want more personalized advice on how to invest in the current market, reach out to a financial advisor from Avidian Wealth Solutions. We are an established high-net-worth investment firm that can help you understand the current market environment and make sure that your Houston retirement strategies are on track.

Contact us today to learn more about how we can help you reach your financial goals and protect your retirement savings.

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