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November 22, 2023

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

Market volatility is something that affects every investor. If your 401(k) plan is losing money, you may ask, “What do I do now?” 

Rather than risk your retirement nest egg by making rash decisions, it’s vital that you first learn what’s causing your account to drop. When you know what the root cause is you can better respond to the situation. 

What’s causing the drop in your 401(k) account value?

While a 401(k) is a relatively safe place for your money, it’s not immune to changes in the market. This type of plan isn’t a savings account. Rather, it’s an investment option that will grow and fall over time. In fact, a recent Fidelity Investment’s study found that the average 401(k) account balance in 2022 was down 23% from the prior year

If you constantly check your invested money, it may seem like your account balance is continuously in the red. While it’s normal to have dips in the market every so often, it’s important that you understand whether this is an organic decrease (i.e. a normal dip in the market) or if you need to make adjustments to your investment allocation. 

There are a few different reasons your 401(k) may be losing money:

The stock market

The first factor that may be the root cause of your decreased savings is a down period in the stock market. These periods may be referred to as “dips,” “corrections,” “recessions,” or “market crashes” depending on the severity and timing of the down period. Your investment will lose or gain money based on the success of your account’s asset allocation. When the market drops, your investments will follow, and vice versa. It’s important to note that the Federal Deposit Insurance Corp. (FDIC) is an independent federal agency that insures deposits in U.S. banks to protect organizations and consumers in the event of bank failures. Because the FDIC doesn’t insure 401(k) plan assets, the growth of this asset isn’t guaranteed.  

Investor behavior

Volatile markets and a stream of ominous headlines can put investors on edge and have them questioning their long-term investment strategies. While market volatility is an inevitable part of investing, markets have generally rewarded investors who maintain a long-term investment strategy instead of reacting to cycles of turbulence in the markets. Staying the course on your investments can make a big difference in the long run—even if things seem difficult in the short term. 

Read more about market volatility.

Expensive fees

The last factor that can have a materially negative impact on your 401(k) balance is high fees. Some 401(k) plans have large administrative and management fees that can burn a hole in investment returns. It’s important to pay attention to all costs associated with participating in your company’s retirement plan.

How to respond to decreased retirement savings

Before you make a quick decision about your 401(k) plan, it’s important to know what the best response is for your personal situation. We’ve put together some helpful strategies for you as you navigate through your retirement savings plan.

Remain consistent

One of the most essential facts to keep in mind is the market will continue to move up and down no matter what. While it may seem like a good idea to pull out your money and stop investing in down markets, it may not be the best decision for you in the long run. Unless your financial advisor recommends you sell your individual stocks or funds, continuing to invest may be the best move to make. 

Educate yourself

Without the right information at your fingertips, it is difficult to make intelligent decisions. Use your employer-provided resources to learn about your 401(k) retirement fund options, how to manage your 401k in a market downturn, or educate yourself on essential retirement savings details. 

Seek help from a financial professional

While it’s important to do your own due diligence when making financial decisions, it’s vital that you have a financial professional you can trust. An advisor can help guide you through the world of retirement account savings while keeping your business goals and financial needs in mind.

Talk to your financial advisor

If you're nervous about your 401(k) plan losing money during a dormant period, it's essential to talk to your financial advisor before choosing an economic path. While these tips are helpful, they will know your financial situation better than anyone else. They will help you make the most informed decisions to move forward smoothly.

Marsh McLennan Agency gives employers and employees the proper resources and information to make the best possible investment options and savings choices.

Marsh McLennan Agency offers:

  • Individual wealth management
  • Employer retirement plan advisory services
  • Employer financial well-being programs

Contact a Marsh McLennan Agency colleague to get started today.