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What to Do When Your 401(k) Loses Money


Investing in a 401(k) is chosen by many employees, offering a convenient and often successful method to save for retirement. While a 401(k) may often be a wise decision, it comes with risks, and understanding how to handle market fluctuations affecting your account value is crucial for long-term financial security. When your portfolio drops it might raise concern, but many experts advise to stick it out. You may want to work with a financial advisor to help manage your assets so you don’t have to worry about it. 

Reasons Your 401(k) Might Lose Money

Several factors might affect the balance of your 401(k), including market volatility, changes in interest rates, inflation and overall economic conditions. Personal anecdotes from investors during the 2008 financial crisis and the 2020 pandemic crash can be looked at to illustrate these influences. All portfolios, even when they are diversified and well-managed, can suffer significant losses during such economic downturns. It doesn’t mean it’s time to panic, though.

Do Not Panic When Your 401(k) Balance Drops

A man panicking when his 401(k) drops.

Witnessing a drop in your 401(k) balance can be disconcerting. The American Psychological Association has found that such financial losses can trigger stress, anxiety and even depression. It’s an uphill battle, yet maintaining an inner poise is essential. Reacting impulsively can lead to unprofitable decisions, such as fear-driven asset selling, only for their value to rebound later. You can miss out on a lot of growth in the market if you pull your money out due to fear. Trying to time the market is not a great financial strategy.

Tips for Dealing With a 401(k) Drop

If you’re facing a 401(k) drop but don’t want to panic then there are things you can do to make sure you protect your portfolio. Here are a few tips that might help for your situation, but everyone’s portfolio will have different needs. 

  • Keep Your Long-Term Plan in Place: Your 401(k) is a long-term investment, and historical data reassures us that markets tend to rebound over time. By maintaining their course, investors often fare better than those beat the market. 
  • Do Not Overreact and Immediately Sell: Panic selling can exacerbate financial insecurity, locking in your losses and preventing potential gains from future market recoveries. Data proves that most investors who sold their stocks during the 2008 financial crisis lost out on the following recovery.
  • Diversify Your Portfolio: By investing in a mix of stocks, bonds and other assets, you can spread risks and decrease the potential losses during market downturns. 
  • Consult a Financial Advisor: In times of market volatility, consulting a financial advisor can be advantageous as they can help you decipher the financial landscape, align your portfolio with your long-term goals, and readjust based on your risk tolerance. Their expertise can increase your financial resilience, especially during challenging periods.
  • Do Not Keep Checking Your Balance: Frequently checking your balance might be tempting but can hike up your stress levels. Instead, establish a practical and regular timeline to review your portfolio, empowering you to resist the urge to frequently peek at your balance.

What to Do During a Bear Market 

A bear market occurs when there is a prolonged drop in prices throughout the market. During a bear market, a financial advisor’s wisdom can greatly steer your decisions as your 401(k) navigates through the falling securities prices. By rebalancing your portfolio to coincide with your original investment goals, guiding you on dollar-cost averaging and helping you focus on quality investments.

Bottom Line 

A man trying to figure out what to do with his 401(k) in a down market.

Seeing a dent in your 401(k) balance can be disconcerting, but it’s crucial to remember that market fluctuations are just a part of the investing journey. Remember, autonomy in managing your finances is feasible, but financial advisors can offer invaluable insights and strategies when navigating through market downturns. Understanding these mitigations and responses to downturns can greatly enhance your financial resilience.

Tips for Investing

  • When you’re looking to invest for the long-term, it’s important to have an expert on your side to talk you out of bad decisions like pulling your money out too early. A financial advisor can help you create a plan and then manage your finances to that plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now
  • Another opportunity to help you with your investments is to take a look at how certain asset changes could impact your portfolio. You can do this with an asset allocation calculator. 

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