Why is My IRA Losing Money?

If your IRA is losing money, it’s important to remember that you’re still saving for retirement. Your account grows tax-deferred until earnings are withdrawn as current income and treated as current income subject to a 10% penalty if withdrawn prior to age 59.5.

Why your IRA lost money could depend on many different factors.

Diversification

Diversification has long been used as a strategy in investing to decrease risk. The idea is that different investments do not move in tandem; therefore, when one area of the market experiences losses, gains elsewhere could compensate.

Diversifying investments is no guarantee that they will always increase in value or protect you against loss; investing is inherently risky, so there is no way to completely avoid losses on the stock market.

Diversifying your portfolio properly may result in more effective investments, so it’s essential that your allocations are regularly evaluated. If you own more stocks of one type than recommended for your risk tolerance, add diversification by diversifying into other markets as part of a balanced approach to investing.

Rebalancing

A New Year marks a fresh start in so many areas of life; and your IRA should follow suit by being rebalanced accordingly. Rebalancing involves selling securities that have increased in value while purchasing ones with decreased values to restore your asset allocation back into alignment with planned percentages. Rebalancing may incur brokerage fees or fund expenses fees or could trigger capital gains tax liabilities in taxable accounts.

One approach is to establish tolerance thresholds that trigger rebalancing when asset classes move too far from their plan – such as 20%. Another is deciding in advance the frequency of your rebalances – either annually or every two years.

No matter your rebalancing schedule, it is crucial that your portfolio adheres to it in order to take full advantage of all its advantages. This is particularly important during volatile markets – when rebalancing in response to bear markets can help limit losses while protecting overall returns.

Waiting Out the Bad Economy

An Individual Retirement Account, or IRA, provides you with an affordable way to save for retirement in an tax-deferred account. An IRA gives you more freedom in selecting investments such as stocks, bonds, mutual funds, exchange-traded funds and real estate than its employer-sponsored 401(k).

As is natural with investments that fluctuate depending on market cycles, your IRA investments could lose value during an economic downturn.

However, this doesn’t mean you should ignore the markets or stop saving for retirement. To mitigate potential losses in your IRA account and minimize chances of money losses by not chasing returns too aggressively; diversifying can help minimize your risks of money loss by not chasing them too aggressively, while it also allows you to compensate when markets dip.

Taxes

Although it can be distressing to watch your investments shrink during a market downturn, losses are an integral part of investing over time. To minimize losses and capitalize on possible opportunities as markets recover, don’t panic and sell off investments as soon as they decline – doing so would lock in losses while potentially missing out on gains as markets recover.

Tax-loss selling in an IRA is typically prohibited unless you’re an individual taxpayer with either a Roth IRA that has accrued losses, or have an nondeductible traditional IRA with contributions exceeding its initial contribution basis. Tax loss selling should also not be undertaken when your itemized deductions meet or surpass IRS thresholds of 2%; or alternative minimum tax applies.

Selecting investments that align with your risk tolerance and regularly rebalancing your portfolio are both key steps towards avoiding IRA losses. But if your retirement account continues to lose assets, seek professional guidance in identifying why this might be happening and creating a plan to prevent further losses.


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