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What To Do If Your 401k Is Losing Money

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If you’re like many of us, you’ve been on a wild ride in the markets this year, and you may have seen your 401(k) account balance decrease, maybe substantially.  This can obviously be very scary, especially if you’re near your retirement years.  

Fortunately, there are things you can do to shore up your retirement funds and decrease the risk that these losses continue. 

What Risk Do I Have in my 401(k) Account? 

Assuming your 401(k) account is invested in stocks, bonds, ETFs or mutual funds, your 401(k) account value will fluctuate with changes in the markets.  While the public markets tend to grow over the long term, they can drop significantly at times. 

During these downturns, it can be very concerning to see your account balance fall, but remember these fluctuations are normal. If you find yourself unable to sleep or stomach these drops, it may be time to lower your portfolio risk as you get ready for retirement.  

Why Is My 401(K) Account Value Down?

The S&P 500 is down about 17% year to date through the first 10 months of the year.  Depending on the investments in your 401(k) and your level of diversification, your account may be down more or less than this. 

This year the U.S. and worldwide economies have faced several uncertainties such as inflation, the conflict in the Ukraine and supply chain issues. The markets are also reflecting an increase in interest rates.  

For these and other reasons, the markets are going through a down period. This will always happen periodically and if you’re invested in the markets you need to be prepared for times like this.   Another reason your 401(k) may be losing money is that you have invested in a specific company or industry that is not doing well. 

This is also going to happen when investing and part of why many experts recommend diversification in your investments. Lastly, your 401(k) account may be down due to fees which can add up over time. 

How Do I Stop My 401(K) From Losing Money?

One of the most common theories in financial planning is the concept of diversification. This financial theory simplistically says that you can reduce the risk of any single company having a material effect on your portfolio by diversifying your investments across many different companies or sectors.  

While your account balance may still fall with drops in the broader market, in theory, you will see less volatility in your account balance. Others may try to sell and buy back when they believe the markets have hit a bottom. 

This course of action, however, is very hard to time correctly, and is usually discouraged. Lastly, if your 401(k) has this option, you can move your 401(k) investments out of the stock market and into vehicles with lower fees and downside protection.  

If you have 401(k)s from a previous employer, you may have additional options to stop losing money.  First, you can roll your previous employer 401(k) into an IRA which will protect the tax status and give you the ability to choose what investments or options you have instead of your previous employer, and it can reduce fees.  

With this option, you can consider rolling the old 401(k) into an IRA fixed index annuity. Fixed index annuities can be structured to pay you a bonus to help regain some of the market losses you may have experienced, and they can provide protection from market downturns while allowing you to participate in market gains. 

Additionally, Fixed Indexed Annuities, or FIA’s, can also provide you with guaranteed income for the rest of your life so you can’t outlive your retirement savings.   

How Do I Make These Changes? 

The most important thing to do is to consult with a financial expert that can help you understand and walk through your options. At Safe Wealth Plan, we can connect you with an experienced agent or financial advisor. 

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About the Author: Benjamin Hulburt

Benjamin Hulburt - Safe Wealth Plan