What to Do If Your 401(k) Is Losing Money: A Comprehensive Guide

Investing in a 401(k) plan is a crucial step towards securing your financial future. However, market volatility can sometimes lead to a decrease in your 401(k) balance, causing concern and anxiety. At O1ne Mortgage, we understand the importance of making informed decisions about your investments. Here are some steps you can take if your 401(k) is losing money.

Don’t Panic

First and foremost, it’s essential to remain calm. Investing for retirement is a long-term endeavor, and short-term market fluctuations are normal. Even if you’re nearing retirement age, making impulsive decisions based on fear can hinder your portfolio’s recovery. Remember, the financial markets tend to rise in value over the long term.

Investigate the Reasons

Take a step back and analyze why your 401(k) balance has dropped. Review your portfolio and stay updated with investment news to understand the trends and factors influencing your returns. If the fluctuations are short-term and there’s no indication of a long-term economic downturn, patience may be your best strategy. However, if a recession or stock market crash seems imminent, consider other steps to adapt without panicking.

It’s crucial to gather information from a variety of sources. The stock market and economy are complex systems, and relying on a single opinion can be misleading. Historically, the stock market has produced an average annual return of about 10% over the past century, so keep a long-term perspective in mind.

Evaluate Your Risk Tolerance

Risk tolerance refers to the level of risk you’re willing to take with your investment portfolio. If you’re a young professional with decades until retirement, you might prioritize accumulating wealth and be willing to take on more risk for higher returns. Conversely, if you’re close to retirement, preserving your accumulated wealth becomes more critical, and you may have a lower risk tolerance.

Consider your time horizon—when you plan to start withdrawing from your retirement fund—and your general attitude towards investment risk. This will help you determine if your current investments align with your risk tolerance.

Look for Opportunities to Diversify

Diversifying your portfolio is one of the best ways to minimize unnecessary risk, regardless of your risk tolerance. If you prefer stocks, consider mutual funds and exchange-traded funds (ETFs) that include stocks from various sectors, such as technology, utilities, and international markets. This way, your returns aren’t tied to the performance of a single industry.

If your employer offers a direct investment program in the company’s stock, evaluate the company’s performance and consider diversifying your contributions into other investment options. Even with a high risk tolerance, spreading your investments across multiple asset classes—stocks, bonds, and real estate—can help mitigate the impact of a downturn in any one asset class.

Consider Financial Advising

As your retirement plan grows, consulting with a financial advisor can be beneficial. A good advisor can evaluate your 401(k) portfolio and provide guidance based on your personal circumstances and objectives. They can also help manage other investments, such as individual retirement accounts (IRAs).

As you approach retirement, an advisor can assist in preserving your wealth and ensuring you stay on track with your goals. Financial advisors can specialize in various areas, including investment management, taxes, and estate planning, or offer broader financial planning services for a comprehensive approach to your financial situation.

The Bottom Line

Seeing your 401(k) balance decrease can be stressful, but it’s important to assess the situation calmly. Evaluate your portfolio and investment strategy, and take steps to reduce unnecessary risk. If you’re feeling overwhelmed or want to ensure you’re on the right path, consider working with a financial advisor for personalized advice.

At O1ne Mortgage, we’re here to help you navigate your financial journey. For any mortgage service needs, call us at 213-732-3074. Our team of experts is ready to assist you in making informed decisions to secure your financial future.