Why is My IRA Losing So Much Money?

Your IRA could be experiencing losses for several reasons. Remember, however, that these investments are meant to provide retirement income; any withdrawals prior to age 59.5 will incur taxes and a penalty.

Long term, stocks have historically provided some of the highest returns on savings accounts – so don’t panic if your IRA account value drops temporarily.

1. You’re investing in the wrong investments

Losses to an IRA account may occur during market fluctuations, but what matters most is whether your investments align with your long-term goals and risk tolerance.

One common pitfall of investing is selecting too-aggressive mutual and exchange-traded funds (ETFs). You can avoid this mistake by opting for target-date funds, which are popular choices among 401(k) plans as they do the work for you by working toward your retirement year and automatically rebalancing as you age.

Another costly error involves investing in unapproved investments or engaging with disqualified parties. You can avoid this error by familiarizing yourself with IRA rules and regulations, including pro-rata rule transactions and prohibited persons, including pro-rata rule transactions and pro-rata rule transactions that allow disqualified people. For more information on this topic refer to IRS Publication 590-A.

2. You’re investing too much

An Individual Retirement Account, or IRA, is designed to hold assets such as stocks and bonds as well as mutual funds and exchange-traded funds that fluctuate in value, with your IRA balance reflecting any change in their worth.

Investors may be tempted to sell off their IRA investments quickly when their values begin to decline, but doing so can be disastrous. Not only may you lock in losses but may miss out on an unexpected rebound that would restore it back up to pre-crash levels.

Selling IRA investments at a loss can have tax repercussions. When selling losing investments, they’re considered miscellaneous itemized deductions, which only count toward your standard deduction if they exceed it. As such, it would be best to hold off until retirement is near and you need the income instead. Instead, consider an indexed annuity with a “buffer”, which ties itself directly to stock market index performance but features a limit on losses.

3. You’re investing too little

Your IRA investment’s value may have dropped, which may cause heartburn and panic. But resist the urge to sell off investments as soon as their value declines; doing so would lock in losses and only increase them further. Instead, focus on buying low when assets in your IRA go on sale and build it back up gradually.

Buy low is an integral component of investing, and it can help your IRA flourish over time. One strategy is to allocate some of your IRA money towards bonds or other asset classes which tend to perform better in volatile markets such as bonds.

Fees that drain your portfolio’s returns should also be reduced as part of an investment strategy; remember, even one percent in annual fees could reduce its returns by over 30 percent! So be sure to include this cost into your investment plan.

4. You’re investing too frequently

If you make frequent adjustments to your IRA, this could erode any gains that have been accrued, in addition to incurring custodial fees or commissions with each change made.

At times, your IRA account may experience some decline; but, remember that this loss will likely recover within time.

Investment in an IRA can be an excellent way to save for retirement, provided that the investments match both your risk tolerance and investment goals. Furthermore, you should rebalance your portfolio annually so as to remain invested in appropriate asset classes.

Additionally, you should avoid investing in assets not permitted within an IRA such as collectibles, real estate and private companies. Finally, regularly monitor your IRA account to detect issues promptly and take appropriate actions.


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