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

By glblguy

Dow Jones

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 employer’s 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 don’t have that knowledge just stay where you are and keep your money in funds that trend high over the long haul and you’ll 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 can’t 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!

42 Responses (including trackbacks) to “Your 401k losing money? Here's what to do”

  1. Anne Says:

    If you move more money into the best-performing mutual fund, aren’t you buying high?

    Most investment advice I’ve read suggests rebalancing periodically. This means, that say you’ve decided you want an asset allocation of 50% domestic stocks and 50% international stocks. You open one domestic index fund and one international. After a while, your domestic fund loses money and your international fund does really well. This puts you off-balance; you now have say 30% domestic and 70% international.

    If you follow your rebalancing strategy, you will sell some of your international holdings and buy more domestic, returning to 50/50. This seems counterintuitive because you’re moving more money into the fund that is performing worse for you, however, if you step back from it, it makes sense because by doing this you are automatically selling high and buying low.

  2. Dan Says:

    What to do when the stock market goes down? It depends on where you are in life.
    1) If you plan to access those funds in the next 2-3 years, you should be sad. Why? Because you have less money to access and not a lot of time to make up your losses.
    2) If you plan to access those funds in 20-30 years, you should be happy! Why? Assuming you are still contributing to your retirement, you have a GOLDEN opportunity to buy more stocks at cheaper prices! In fact, you should hope that the market stays where it is or lower until you need the money, and then hope the market takes off then!

    Dollar cost averaging is the best way for any layman to invest in the market. The beauty of a 401k plan is it automatically causes you to do this.

    So, don’t worry.

  3. NoDebtPlan Says:

    You’re right on. Unless someone is just about to retire, they shouldn’t worry.

    I also like the new saltwater blog. Saul T. Wadder… hilarious.

  4. Becky@FamilyandFinances Says:

    As someone who works in the financial services sector, I love to read advice like this! It’s great advice that everyone should heed. Thanks for helping to make my boss’s job easier ;)

  5. Deamiter Says:

    As Anne said, purchasing funds if they’re trending higher than others is exactly the opposite of what you should be doing. If you go back and look at the historic performance of different funds, you’ll see that everything is cyclic — money sloshes in and out of different sectors and investments. When one has been doing well recently, it is likely overpriced relative to the rest of the market and is much LESS likely to continue to outperform other investments in the short term.

    As Anne said, what you’re doing is buying high (after a fund has been booming) and selling low (when the fund has slumped and another fund is booming). Instead, come up with a target allocation and when one fund does really well, sell a bit and put it in areas that haven’t been doing as well. That way you’ll be buying low (after a period of poor performance) and selling high (after a period of high performance).

  6. Sean Says:

    Great post. You hit the nail on the head. If you have a few years till retirement, ride out the storm. If your process works for you, by all means keep it up!

  7. PT from Prime Time Money Says:

    I heavily agree with your second section “regular contributions”. It’s important to stay the course. Dollar-cost-averaging is a term every owner of a 401k should be aware of.

  8. Lisa Spinelli Says:

    Good article. I have been on one continuous panic attack since the market started dropping.

    When “they” decided to have everyone take care of their own retirement money, did they stop to think about what would happen if the market should take a nose dive? I just wrote an article about it last weekend entitled “My 401K is Falling and It Can’t Get Up”.


  9. Adfecto Says:

    Great advice. The funny thing is that if more people would follow it we would stop having most of these big bubbles and crashes. It is self fulfilling prophesy. Stay the course, or even better buy more shares at a discount. 30 years from now you will be glad you did.

  10. Brip Blap Says:

    I would agree with Deamiter and Anne – don’t shift your investments too much in the 401(k), and buy low rather than high. I am planning on starting to invest more heavily in US stock and real estate mutual funds in my 401(k), and less in international (since it’s run up so much recently). But in a way the best advice is just to pick a nice mix of low-fee funds and hammer away at them without ever changing your strategy. Hopefully you’ll catch ups as well as downs. Great article, and always nice to be reminded of the sensible thing to do…

  11. Emma, Retirement Lady Says:

    Great article and great advice – its really, really important to understand that retirement savings are for the long haul, so these little dips (ha!) in the market won’t do you any long term harm.
    At the same time, you do have to keep your eye out for any malfeasance in your fund – if there is an issue, you should pull your money and *fast*
    But a fund that is matching the general drop in the market isn’t something that the saver should react to :)

  12. Lena Says:

    My 401k is losing money, because I lost over $8000 in my 401K last month and it wiped out a whole year of contributions, I visited a financial adviser. I’m 59 years old and was advised to make the shift to more conservative funds right away. I just wish I’d done it in December! I’m open to other suggestions though.

  13. glblguy Says:

    @Lena, I’m not a financial advisor but at your age that sounds like good advice. It’s probably time for you to be looking at more conservative investments.

  14. Lena Says:

    Thanks for confirming that I probably got good advice, glbl guy!
    Having lost nearly 10% of my retirement money since Dec. 31st as a result of my 401k losing money has been a very upsetting. Lena

  15. roy Says:

    I lost 30% in my 401k back in 2000/2001 by staying the course.

    It took me to 10/07 to regain my losses!!

    now I’ve lost half my gains in just 6 months.

    this staying the course just isn’t working.

  16. Ryan Says:

    I can’t stand this type of advice.
    I always ask people when is a good time to sell a mutual fund. They say never. Always buy. When its going down you should buy because you are buying low. When its going up you should buy because its a good performing stock. Ludicrous.

    The attempted comparison to a trader on the stock market buying low and selling high is ridiculous. Traders will pick up GM stock right after some really bad news and then sell it a few weeks later right after some really good news. Rinse and repeat.

    I think the automatic brainless investing in 401ks is part of what fueled the dotcom debacle. People talk of historic performance but 401ks are relatively new in this country.

    I’m switching all my 401k investments into stable value funds. I get about a 5% return on them and with employer match if I drop 6% of my income on it this year I should expect to see a nice linearally increasing balance in my 401k. To me thats better than getting -8% returns over and over. When the market in general becomes bullish I’ll change my direction to include some stocks. Riding out the storm with cash based funds is an option right? Of course it is.

  17. Richard Owen Says:

    Advice such is this is typically posted by managers of 401k accounts. Problem with that is that typically the 401k administrators are more worried about there bottom line and not yours. The more you move around money within your 401k, the more it costs them and the less they make. If there profitability was in part dependent upon the perfromance of your 401k plan, guess then what there advice would be?! Admittably on the surface the advice given makes sense based on market conditions in the past. However, in the last several years the market is an entirely different beast, and what held fast and true as good sound advice for many years, simply may not be the case now. Mortgage companies are failing, Banks are folding, energy prices are soaring and recession is knocking on our door. The advice this gentleman is giving you is the same advice given just prior to the great depression. While a 401k plan may eventually recover a huge market downturn over an extended period of time, that is no reason to accept losses now with the possible hope of making them back later. I pulled most of my 401 k money out of stocks and bonds at the 13,500 level and put them in stable assests until the volitale market soarts itself out. I would suggest most of you do the same with yours. This is not to say that you should not continue to buy stock heavy funds with current future investments (thus buying low), but watch there performance, and try to invesst in inflation proof funds (energy, exploration, commodities, precious metals). Do some research, pay attention to the markets, afterall it is YOUR MONEY! I am sure Indy Mac told all of there customers that had over 100k in savings that they were just fine, not to worry. What does this mean to you? Quite simply people lie to benefit themselves.

  18. glblguy Says:

    @Richard – Just a point of clarification, I don’t manage 401k accounts.

  19. Richard Owen Says:


    Sorry did not mean to imply that you did or did not for that matter, just that it is the typical advice given by such. I am merely offering a counterpoint based on my opinion and that of some others. While I am by no means saying that day trading ones 401k money is a good idea (actually one of the worst things you can do) It doesn’t take a rocket scientist to see trends in the market and to limit ones exposure during these severe downward trends. I don’t think anyone is predicting the US economy is going to turn around overnight and suddenly we have a great market again. In my opinion, I think we might see bottom at around 10,500 – 10,000 over the next quarter or two until it stabilizes and slowly makes a comeback. Granted this is merely a somewhat educated guess on my part so do as you will. But, Understand that as I said before it is your money and it is in your best interests too educatate yourself. While one can summize that over the long term you will still make money by leaving your money put and not changing your investements within your 401k (with the possible exception of a complete market crash), I counter with the fact that you can make much more by minimizing loss’s in downward trends. Nobody is going to accurately predict the bottom nor the top but if you can catch it within 25% of each which really isn’t that hard to do, you will find yourself in a much better position at retirement.

  20. glblguy Says:

    @Richard – No problem and I didn’t think you did. Just didn’t want anyone to be confused. Your counterpoint is very valid and something people should consider. Thanks for the well written and thoughtful comments.

  21. Dale Says:

    My 401k is definitely losing money and I really wasn’t sure what to do! Thanks for the great advice!

  22. New grad Says:

    I just started my 401k in Jan, and I have lost 10% so far. I think I might be better off if I put money in my saving/money market/CD instead. I don’t trust those 401k administrators no more. They know we are losing money and they have done nothing at all.

  23. Richard Owen Says:


    Dare I say I told you so? Advice such as this is outdated and quite simply wrong re-read my original post dated July 18th and ask who’s advice you should have followed!

  24. Robert Says:

    i’ve talked to numerous financial advisors and subscribe to a number of market related newsletters.

    By-and-large, savvy investors and experts are pulling their money out without delay. Even 401-k’s can be transferred to safe-havens within your selections of available funds.

    From there you can continue your contributions, then you can jump back into the market when things seem to start to turn around.

    As I was told you only loose money when you withdraw your money, not transferring it to safer alternatives.

    I know, this is called market timing, but, if there was every a need to time the market now is it! I

    In the regular day-to-day market during normal times market timing is not recommended, but this is self preservation.

    This morning I read and article by a gentleman with a PHD in finance, he call the recent events the result of what’s called a “secular” market and may take up to 15 years for a full recovery. Who has that many years to wait!

    I for one have sat-tight and watched my retirement essentially disappear, I think doing nothing would be a great disservice to ones self.

    When I get the green light, I’ll transfer back to the same funds I had for the same amount or more than when I pulled them out and ride the wave back up.

    Desperate times require desperate measures, market timing does not seem so risky at the moment…

  25. Gail Bankston Says:

    My 401k is down 17%! I recently lost my job due to downsizing so nothing is being contributed to it. Should I still leave it alone and hope for the best considering the economic climate now? I am 55 years old and it’s now valued under $2000. (Yes I started late..)

  26. Bill Hammons Says:

    I see all these commits are from 2008. So how did that “stay the course” work out for you? I pulled all my money out in Feb. 2008 and put it in bonds. My follow employees wouldn’t listen and some lost up to $40000 I gained $10000 in 2008. There’s a reason to leave a sinking ship before it goes all the way down, you’ll be sucked under.

  27. Billy McDougal Says:

    @Bill Hammons: What exactly did you do? If in a 401K, move all existing money into bond funds? What about future contributions? Keep it in stocks so you are still buying low. And the most important question – when/how did you know to pull the trigger? TIA

  28. Bob Driver Says:

    I don’t understand why it was so hard for people to see how bad things were at the time. Major banks failing, jobs down, housing collapsing. I told everyone I knew to sell on Jan 2, 2008. Then I told everyone I knew to sell if they were still invested on Aug 29,2008. I told around 30 people, close friends etc and yet not one listened. They all said no, no, you hang on through good and bad, buy and hold etc. I have very good reasons for why I picked those dates at the time to use as my guide to sell. It’s really not that complicated to be honest. It’s true that there are more bull markets overall and that bear markets are usually corrections, pull backs etc. But when it’s 50 percent plus on the down side that isn’t a pull back. Here is a stat for you all, buy and hold from 2000-2011 negative 34 percent, Negative! Using my system from that same period would have netted you about 1,100 percent.

  29. robert Says:

    I am considering rolling over some of my 401 k funds to purchase service years in my state retirement plan which will allow me to retire earlier at a higher percentage of retirement? is that a good idea?

  30. Dave Says:

    Your advise is good if the sky were not in fact falling. But I’m afraid it has been long enough proof that the market no longer offers up those 55% yearly increases and the downs are more frequent and the news continues to worsen. So what’s to do? Get out. Take your little loss and protect the rest. Are you kidding me? Invest in foreclosure real estate or Iraqi Dinar even pay off your home, but leave the mutual funds to flounder in a pool of poorly managed financials with no hope of substance. Our government has no intention of helping the average Joe, cutting taxes, reducing spending, bringing back or creating jobs, or any of the other political hoopla. It is simply cratersville…things are not working as they used to work (including people) and the government is sucking every last cent out of the working class to pay for votes among the growing free-loading welfare state. If you think that big banks and wall street are going to save the day for an average 401k investor, think again, they are in this to fleece you and build golden parachutes.

  31. kelly Says:

    When the economy and the dollar collapse, the government will confiscate assets in retirement funds to pay debt. Stop contributing to retirement funds and invest in individual accounts so you have complete control over your money.

  32. Cris Says:

    SO your advice here is ‘even if you 401k is losing money keep feeding it money?’ Do you actually get paid to say this? Hell why don’t I make my check out to you rather then send it to the big banks!
    This advise is really border line criminal!