Why is My IRA Losing So Much Money?

Many investors are shocked to find their IRA has diminished during an unstable market, as it may be invested in volatile assets or it may be an aggressive Roth IRA that exceeds 401(k).

Keep your losses in perspective: they’re temporary and part of the investment process. Diversify, be patient and monitor your account regularly to protect yourself against losses.

1. You’re Too Young

As is often stated, saving for retirement requires patience and is best done over a prolonged period. Your goal should be to build savings over the years leading up to retirement in an investment strategy which allows your savings to grow over time.

Young investors have an advantage when it comes to investing, thanks to compound interest. By saving and investing in an IRA, their returns can be reinvested for even greater gains that compound over time.

Not that your IRA account should experience periods when its value declines – it is expected when investing and it is important not to sell investments at these points – rather, you should remain diversified while monitoring it on a regular basis.

2. You’re Too Old

As someone far from retirement age, you might be taken aback when your IRA balance decreases following a market downturn. But this should not lead to panic or selling off investments prematurely.

As retirement approaches, it may make sense to switch your IRA investments over to lower-risk options like bonds. That way, your money will still grow while being less affected when stock prices decline.

Traditional and Roth IRAs don’t impose an age restriction when it comes to contributions; however, required minimum distributions (RMDs) will need to start by 2023 at age 73; otherwise they begin in 2024 depending on your birth year. Although this doesn’t force withdrawal of money at that point in time, but does restrict your flexibility.

3. You’re Not Diversified

An IRA can be an excellent way to save for retirement, but it’s crucial that your portfolio be well diversified. A well diversified portfolio involves investing across various asset classes – this allows you to limit losses should any one type of investment perform poorly and limit potential losses from one type performing badly than expected. There are great all-in-one investments like index funds that make investing simple!

If your IRA is undiversified, it could be losing money because its investments include unstable asset classes that fluctuate. Therefore, it is critical that you regularly rebalance it for maximum effectiveness.

4. You’re Taking Too Much Risk

No doubt about it: Saving for retirement is a marathon not a sprint. By saving steadily and investing your savings for long enough periods, an Individual Retirement Account (IRA) may experience considerable rewards; but also losses. It’s important to refrain from selling investments when they begin losing value; otherwise that could lock in losses that leave you short on funds when retirement arrives.

At times, seeing your IRA balance fluctuate can be frustrating; however, this is normal and should not discourage long-term goals, diversify portfolio and keeping a long-term perspective in mind. Research has also demonstrated that people receiving less frequent feedback tend to take greater risks with their investments.

5. You’re Not Monitoring Your Account

Your IRA investments likely include stocks, mutual funds and exchange-traded funds (ETFs), which could cause significant declines in market values affecting the value of your account.

Your retirement savings should grow over time thanks to compound interest, making an IRA the optimal place for long-term saving.

However, it’s not unusual for your IRA to decline in value over time. Most financial experts advise against withdrawing investments during a decline; by withdrawing during such times you could end up permanently locking in losses. That is why regular monitoring of your IRA is key – to identify issues early and take corrective actions.

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