What to do if your 401(k) is losing money

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Losing money in your 401(k) can be unsettling, but fluctuations are part of being a long-term investor. Whether your 401(k) loses value from market downturns or you simply need to rebalance your portfolio, saving for retirement is a long-term strategy and it’s important to stay on track.

Here’s how to keep your investments working for you if your 401(k)’s value has dropped.

5 steps to take if your 401(k) is losing money

Before you do anything else, don’t panic. The value of your 401(k) and other retirement accounts will fluctuate over time with the ups and downs of the market — especially if you’re a younger investor holding mostly stock-based funds, which are more volatile than bond funds but return higher yields.

Long-term investors can beat those dips by holding steady and riding the highs too. If you sell in a knee-jerk reaction as your 401(k) loses value, you may not recoup those losses later. Remember, a loss is only realized if you sell. (Some investors even deliberately buy the dip to get more for their money.)

That said, a change in value can be a good reminder to make sure that your 401(k) still aligns with your financial goals.

1. Look into why your 401(k) might be down

What if it’s not you, but the market? Before digging into your portfolio, take time to understand what’s going on in the market that may be affecting your 401(k).

The market has both periods of growth and decline, and it’s important to take a long-term perspective. It can be easy to get discouraged during market downturns and want to withdraw your money or panic sell. Instead, focus on compounding growth over time vs. reacting to short-term changes. If the market is down overall, it may be the market, not your 401(k).

2. Keep contributing

With dollar-cost averaging, you invest a fixed amount of money at regular intervals (15% from each paycheck, for example) regardless of what the market does.

By steadily investing, you reduce the impact of market volatility, hitting the highs and the lows, avoid timing the market and even increase your purchasing power during dips. It can be worthwhile to keep calm and carry on with your regular contributions.

3. Reevaluate your risk tolerance

Take a peek at your portfolio and reevaluate how long you think it will take to reach your retirement goals and how much risk you’re willing to take on. Depending on your timeline, you may revisit your 401(k) investing strategy and rebalance your portfolio.

• If you’re nearing retirement, more stable investments are key to ensuring you’re not losing out on retirement funding. Begin shifting investments to bond funds, money market funds and stable value funds.

• If you have more time to invest, you can potentially take on more risk for higher returns. Consider growth funds, index funds and mutual funds that ensure broad market exposure.

Remember that each person’s risk tolerance and 401(k) investment strategy varies based on long-term financial goals and individual risk. The right portfolio for you may not be the right portfolio for someone else.

4. Reduce fees and expenses

Occasionally, it can be helpful to review what fees you’re paying associated with your 401(k) and determine if paying less in fees elsewhere makes sense. High fees can significantly erode earnings over time by diminishing the amount of money you’re able to reinvest into the fund.

• If you have an old 401(k) with high fees, consider rolling it into a new 401(k) or an individual retirement account (IRA) with lower fees.
• If your current 401(k) has high fees, see if other investments within your plan may be more economical. You might also be able to advocate for investments with lower fees or a plan that better suits your needs.

5. Consider hiring a financial advisor

It never hurts to consult with a financial advisor or planner who can not only help you assess your 401(k) and long-term goals, but help you figure out how to allocate your assets based on your risk tolerance and time horizon.

A financial advisor may identify other things, like concentration risk, within your portfolio that could also be inhibiting you from realizing higher returns. Additionally, financial planners can help with things like tax planning and withdrawals in retirement.

Bottom line

If your 401(k) is losing money, don’t panic. But do get curious and see if you need to make some adjustments. Start by reevaluating your risk tolerance and asset allocation. Take time to understand that the market has its ups and downs, but when it comes to saving and investing for retirement, a long-term strategy of steady investing has historically paid off.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.