Why is My 401(k) Losing So Much Money?

Why is my retirement account losing so much money

Though it can be disheartening, remembering economic downturns as temporary is key for keeping your 401(k) balance intact. Stocks have historically shown they can rebound from economic slumps so it’s crucial not to give up and remain the course.

However, if your IRA is losing money rapidly and rapidly diminishing in value, it may be time to adapt its investment strategy. Here are a few reasons that could explain this misfortune in retirement accounts:

1. You’re investing too aggressively

Due to shrinking pension plans and Social Security concerns, many people are investing more aggressively for retirement. If your portfolio contains too many stocks, however, its performance will fluctuate more often and incur losses more quickly than it would with an approach focused on balance.

An aggressive investment portfolio means more of your assets are allocated towards stock funds, which tend to be more volatile than bonds and cash investments. This could pose problems if you’re approaching retirement and need access to your money in an unstable market.

Finding an asset allocation that best meets your needs and temperament, and sticking with it throughout all market cycles is the key to riding out any losses or any market recoveries successfully. That way, you will be better positioned to weather losses while benefitting when they inevitably occur.

2. You’re investing in a recession

Recessions are an inevitable part of our economy’s cycle and don’t only impact stock markets – they also affect various industries, lead to unemployment and cause prices to decrease.

Recessions can have a dramatic impact on your retirement savings, yet that shouldn’t alter your investment approach. Timing the market can be tricky; though it might be tempting to sell during an economic downturn, doing so may prove more costly in the long run.

Focus your investments on high-quality companies and funds with potential for strong long-term returns, keeping in mind that stock recoveries often start shortly after recessions start, and make sure to have an emergency fund covering three to six months of expenses.

3. You’re investing in a single stock

While 401(k) plans provide a secure investment vehicle, their value can still fluctuate with market movements and events that affect stock prices such as economic events or investor behavior.

When investing in individual stocks, your retirement depends on their performance alone. While there may be an occasional surprise winner, playing the long game and taking advantage of compound interest should usually prove more fruitful in your favor.

4. You’re investing in a single sector

it can be alarming to witness your retirement account decline in value, but don’t panic and make hasty decisions.

Investing for retirement should be seen as a long-term venture, and markets may experience fluctuations over time; however, by diversifying asset classes you can reduce risk and ensure your savings remain safe even during times of market instability.

Be aware of current market trends and economic indicators. Consult with an experienced financial professional who understands your goals and can offer tailored advice, especially as retirement approaches. Consider rolling over your 401(k) into an IRA which provides almost endless investment options; your adviser can then assist with diversifying investments to protect against market crashes.

5. You’re investing in a single company

No matter how volatile the market may seem, your retirement account should always remain invested for long-term growth. One effective method to do this is through building a balanced portfolio with stocks, bonds and mutual funds.

Rolling your 401(k) into an individual retirement account (IRA) at an independent investment institution could offer virtually limitless choices for retirement investments. Depending on your personal needs and goals, this move could help to decrease risk in your portfolio and prevent additional losses to your IRA.

Are You Seeking Guidance or Advice from Comerica Bank Financial Professionals? Reach Out Now. A Comerica Bank financial professional will explain how investing in a well-diversified IRA may benefit your savings and how best to protect them.

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