Your 401k losing money? Here's what to do

By glblguy

The stock market continues to be a concern with many people and as a result, one of the most popular search engine queries I get here on Gather Little by Little is My 401k is losing money. What should I do?

To be forthright, investing is not my area of expertise, and I prefer to let other professionals manage my investments in the form of mutual funds and my employers 401k program. I have done enough reading and research though to know a few key things about retirement accounts and 401k programs in particular.

Those not as familiar with the details of the market and with mutual fund programs in general are looking at their statements right now and frequently seeing negative numbers. I know I am. All of our 401ks are losing money. Our 401k, retirement, and mutual fund accounts are falling and their first instinct is to pull their money out or stop contributing for now. Do not make that mistake .

Instead, do the following:

Understand the stock market

Research stock market history along with the history of your 401k mutual funds. In doing so, you will see various trends over the history of the funds. Over any short period of time, sometimes the funds were down and sometimes they were up. If you look over the long haul, the fund should be positive and in general be in the 10-15% return range.

This is due to the fact that over the past 30 years, the market has provided a general overall return of 10-15% on average. Basically this means the market was more up than down. So while we are currently in a down market, at some point in the future, assuming history holds true, the market will recover.

Understand the value of regular 401k contributions

Each time you are paid, you are making regular and scheduled contributions to your 401k retirement account. This provides a consistent investment plan that is not market dependent. In some cases you will invest when the market is down and in others when the market is up. The principle here is that at a mean level, the market trends upwards and those so will the average of your investments.

Right now, many of us are seeing our 401k values go down as a result of buying at higher prices for the last few years. As you continue to invest though, you are buying low. When the market does finally recover you will see the gains the stocks you are buying low now go up. Hopefully significantly up. Remember the golden rule of investing: Buy low, sell high. Right now, you are buying low.

Evaluate your current 401k mutual fund performance

While I am not an advocate of checking your fund performance daily, weekly, or even monthly I do recommend taking a look at your selected funds performance at least every 6 months. I personally look at mine quarterly. If I see a particular fund is far out-performing another, move my money over to the higher performing fund.

Be careful about doing this though, as you really want to pay attention to the long term trend of the various funds. If you see one mutual fund trending much higher in the long term, than stay with it, regardless of the current return. If, however, they are relatively same in the long term, but one is trending far higher than another at the present time, than I generally move mine over. Doing this does require some knowledge of funds and the current market. If you dont have that knowledge just stay where you are and keep your money in funds that trend high over the long haul and youll do fine.

Stay the course even if your 401k is losing money

Overall, the knee jerk reaction for many people is to exit the market due to the current downward trend. As I send before, do not do that. Just stay the course and maintain a long term perspective and not a short term one. Savings accounts, CDs, and other financial products are geared for short term returns. Stocks and mutual funds are geared for the long term. You cant make short term decisions on long term investments!

The market has been around long enough to trust this trend will continue. Recognize that right now we are just in one of those lows and eventually the market will recover and trend upward again. Stay the course and you will be rewarded in the long-term.

Is your 401k losing money? Does it concern you? What are you doing? Add a comment!