I'm losing money in my 401k – Whoa!
By glblguy
It's a long way down
As many of you know, my day job is in the banking industry. Over the past couple of weeks, I’ve been slowly watching my companies stock plummet. It seems each day brings another significant drop. I don’t pay real close attention to my 401k balance. Typically, the only time I even look at it is when I receive my quarterly statement, or need to update my How To Determine And Track Your Net Worth. Due to the declining market, I decided to take a peek. Like most, I’m losing money in my 401k.
Losing money in 401k
Over the past few months, my 401k value has been slowly declining. But from June to July the value dropped 3.5%. Since this same time last year, my value has dropped 11.6%. While not earth shattering, when you are used to seeing increases of 10% or more each month a 401k value decline of more than the same amount is a bit tough to swallow.
All of my funds are allocated out to high-risk mutual funds with reputable companies like Vanguard and Evergreen. I am not an investing expert, so would rather let these experts handle the investing for me. The track records on both companies have yield good returns in the past. The problem is the down market. Even the best performing funds are hurting right now.
Don’t withdrawal money from your 401k
The big question these days is should you pull money from your 401k or consider moving your money into more conservative funds. That of course is a very personal decision. Since I am fairly young (38) and believe the market will recover I am staying the course. Right now I’m losing 401k money, but my funds are buying stocks at very low prices. Given the market’s history, and the cycles our economy seems to go through, when the economy does finally recovery, the stocks my funds have purchased at low prices should really do well. I am in my 401k for the long term and even though I’m losing money in 401k, I’m staying the course. 20 plus years at least and maybe even more, that of course depends on if my dreams of early retirement come true or not.
If you are older and closer to retire, especially within 10 years than it might be appropriate for you to consider other options like moving your 401k allocation to more conservative funds. Under no circumstances would I recommend pulling money out of your 401k. The penalties and fees just aren’t worth it.
Stay the course
I’ve decided not to look at mine for a while. Given I’ve decided to say the course, it’s just too stressful nor is it reasonable to watch your 401k day to day or even month to month. I recall receiving huge gains in my account during the 90s. Now with our down economy and the continued fall of the markets, we’re seeing a downward trend. It’s all part of the ebb and flow of the market.
I believe it will recover. How about you? Are you making any changes? Are you losing money in your 401k? Share your thoughts my adding a comment.
Photo credit: destinelee
July 17th, 2008 at 7:16 am
I’m also not pulling any money out. I’ve seen a bit of decline for mine too, but I know that the investments themselves are good. It’s a bad economy and I just have to ride this out. Thanks for the post.
July 17th, 2008 at 7:24 am
My husband and I have also decided to stay put since we have at least 30 years until my husband will retire.
I second the motion to continue investing while stock prices are down, especially if you have the added benefit of employer match such as my husabands company offers.
Finally, taking money out of a tax deffered investment is almost always a no-no. The system is set up for you to come out on the losing end because of the taxes and penalties.
If someone really must get thier money out of a high risk fund I would definitely suggest reallocating versus cashing out.
Great post.
July 17th, 2008 at 8:35 am
Not only should you not take your money out right now, you should be increasing your contribution if at all possible right now. Prices for stocks haven’t been so low in years, and as long as you are diversified you should be buying all you can.
Look at it this way: The DOW is about where it was 3 years ago. You are being given a chance to go back in time and buy stocks at the price they were 3 years ago, rather than at the inflated price you’ve been spending for them over the past 2 years. Over time, the market will recover and the DOW will go up, and you will end up with more shares (and therefore more value) than you would have if the market had not entered into this correction.
Note that you should not be drawing down your 401K if you are near retrement, either. Even if you’re 65, you can expect to live another 20 years or so, more than enough time for your investments to recover. At that age, you should have some investments in bonds or cash, and when you have to take money out, take it out of that, not your stocks.
July 17th, 2008 at 10:55 am
It’s my understanding that you should never withdraw money – the market historically goes up even as in the short term it is volatile. But that’s not to say that you should just let it sit. You could reallocate.
I just am not looking at my account. I check it a couple of times a year and reallocate if needed. But you never want to ‘sell low’ and panic just because of a loss. It needs to be a long term view.
My mom is having the same issues with her account. And I just have to try to help her not be emotional and panic. It’s hard though when it’s money! :)
July 17th, 2008 at 11:42 am
This is such a timely post for me. My sister and I were just discussing investment strategies on the phone last night. I had mentioned that I finally bit the bullet and had gotten aggressive with my IRA allocations, and she wanted to tell me that maybe now is not the time to do that.
I’m just not sure.
I’m only 29, so I have time to wait this down market out. But I do get a little nervous when I think that I could have kept the money in more stable accounts for now and gone for the higher-risk funds when things were “turning around.” But I like the above commenter who said that stock prices are such that you can buy more shares for your buck (if I understood them correctly).
Somebody please reassure me that going aggressive right now is not financial suicide!
I also just put money in a total stock market index fund through a ROTH IRA, and I am gonna just let it do it’s thing. I feel good about this money, and hope to add to it every year.
July 17th, 2008 at 11:48 am
Great, I read your post and go check on my 401(k). Baad! But I’m with you on the long term view. I’m around the same age and have plenty of time for the market to recover. It hurts to look at my portfolio but the money I put in now is buying cheaper stocks.
July 17th, 2008 at 1:01 pm
Some sound advice at this time when it is tempeting to pull out. The key thing is to diversify to lower risk asset classes (like you point out) and even if you do reduce your contributions, make sure still put enough in to get the employer match (free money!)
July 17th, 2008 at 3:46 pm
Good sound advice!
July 17th, 2008 at 5:50 pm
I take a slightly different view.
Right now, a good place to invest your money is in real assets like gold or silver because they are hedges against inflation.
Often, gold and silver will rise in price while the value of the dollar, the economy, and stocks in general fall.
Then again, I don’t have a 401(k) and prefer not to have one. And I’m not a financial expert. So it’s probably better to completely ignore my opinion. :-)
July 17th, 2008 at 7:52 pm
It makes no sense to pull money out. Moving into money market, or something similar, based on the current market conditions doesn’t make sense to me now either. I would say the risk of a bad next year or two is higher than normal. But It is perfectly possible the market will do well.
And even if it does poorly the next year, the odds are against you being smart/lucky enough to move back into the market at the right time. I am making no changes.
I might increase the amount going into my 401k to take advantage of the lower prices for stocks (and to give my retirement account a little bit extra for the long term) – but I doubt it.
July 18th, 2008 at 9:51 am
“Over the past couple of weeks, IÂ’ve been slowly watching my companies stock plummet. It seems each day brings another significant drop. I donÂ’t pay real close attention to my 401k balance.”
I hope that your company’s stock performance is only very loosely related to your 401k performance… in other words, I hope you don’t have much, if any, of your company stock in your 401k.
July 18th, 2008 at 1:14 pm
To expand on what MITBeta is hinting at. It’s usually not a good idea to invest in your employer’s stock. Investors talk about diversifying, and with your salary coming from your employer, a huge amount of your “human capital” is invested with your company, there is no reason to add more exposure to your company’s financial performance.
The last thing you want if for your company to hit a bad patch, the stock goes down and you loose your job. Sometimes there is a discount on company stock available, I don’t think it is enough in most cases. I used to work at Citi, and I’m glad I did not use a 10% discount to by Citi at $50. If I was still there, I would be facing a low chance for a raise, and the stock at $20. That $5 savings on my purchase doesn’t look so rich.
If anything, you want to find investments that are unrelated to your employer. That way if you employer is doing poorly, at least you investments will be holding up, just when you might need them.
July 18th, 2008 at 4:14 pm
@MITBeta and Spencer – No, nothing in company stock. Was relating the overall market to my 401k. Can see how that was a bit confusing.
July 21st, 2008 at 9:54 am
I understand how much it stinks to look at your 401k and see the balance dropping. My own 401k has shown a huge drop this year, but it seems like everyone is having pain right now. I’ve actually been thinking about increasing my withholdings right now because I figure that prices for stocks are probably nearing a low point right now, and I might get more bang for my buck by buying more right now?
July 21st, 2008 at 10:31 am
-11% and the money are staying exactly where they are.
July 25th, 2008 at 6:55 pm
Before you fully subscribe to the buy and hold mentality look at the S&P 500 for the last 9 years. It is flat, and negative if you count inflation. Now look at the Dow from 1965 – 1983. Don’t think the market can’t go into a a flat period for 20 years. It certainly has in the past.
My suggestion is you a bound and determined to buy and hold is to learn about options and write covered calls, but that means dropping your mutual funds for ETFs.
August 28th, 2008 at 1:10 pm
Many of you have the right idea, in that you should NOT pull your money out because the investments are not performing well. In fact, you will likely achieve the best long term results if you regularly contribute, regardless of what the market is doing.
What is important is that you have the appropriate allocation of funds. You will ALWAYS earn more return for every “unit” of risk if you own a diverse set of investments. For example, there are very few people for whom holding only stocks is appropriate. Visit my website and go to “Insight” for an article I wrote about diversification.
Lastly, if you’ve already retired and still keep your company’s 401k plan, it might be worth rolling it over into an IRA. You will no longer be limited in your investment options to those in the 401k plan.
September 15th, 2008 at 3:15 am
Good thing that our 401K is online, where I can move around my portfolio. I don’t know if its a good thing, but currently my assets are moved from a diversified portfolio to a more “low risker”. I just have to remind myself (check every month in the website) that once our economy is heading to a bullish market, I have to re-balance my portofolio to where it was prior to our slow economy. So instead of anticipating a loss of 5% to 15% on mid to high risker stocks, I moved them to say a more stable +2% on bonds. I would rather see the 2% gain than predictable loss of 10%. Im not going to sit and watch my 401K lose up to 15% of my invested money every 3 month statement…
September 15th, 2008 at 7:48 am
@ Joe:
You’re “market timing” with this strategy and will miss a good deal of gains with it. By the time you decide our “economy is heading to a bullish market” you will have already missed substantial gains.
Good luck with that…
October 10th, 2008 at 12:27 am
My 401k is down about 50k in the last 10 months, and it SUCKS to watch. At this point what can I do? Nothing. If I withdraw, I lose, If I move around, I dont buy as much stock..either way I have no choice but to ride it out and hope it bounces back. If not, we’ll all be on welfare together in 30 years
October 10th, 2008 at 5:33 am
@SeattleDave – OR more likely we’ll be sitting together in Cancun sipping fruity drinks and talking about what flavor we’ll drink tomorrow ;-)
October 11th, 2008 at 11:04 pm
I’ve been watching my IRA religiously because I’d just moved it from a conservative porfolio to Fidelity’s freedom 2050 or something like that, it is more diverse and more risky. I am 25 and was just starting to get serious about what to do with the IRA my job had started (working for UCLA). But since the decline, i’ve lost 30% of my funds in the past weeks! Definitely not taking any out, but want to know how much I should put in and how does it buy more stock?
October 13th, 2008 at 12:44 am
Thanks for this great blog site!!
What happens when you keep losing 401 money to a zero balance, IM losing fast! Is that the end of my money and do I have to put more money into it again?
Thanks for any advise!!
October 13th, 2008 at 6:36 am
@Sam – Hi Sam. Thank you, glad you like it! I don’t think that is possible since your 401k value is based on the stocks that you own. Unless those stocks go to zero, your 401k balance could never go to zero. We’ve all lost large percentage, but I’m hoping the market begins to level out soon.
October 15th, 2008 at 5:23 pm
When we talk about pulling money out of the 401k does not mean cash out your 401k account. We are merely suggesting you move your 401k investments to more conservative choices such as money market, stable value funds, bonds etc. Therefore, there won’t be any change in tax deferred status.
If you are going to gamble on the stock market in a tough economy, it is better to do it outside your 401k, in a cash account, so that if you loose money, you can deduct such losses from income in your tax return.
401k tends to hold a major portion of your net worth and it is not a vise idea to put it to risk.
There are extended market cycles where stocks remain depressed for 20, 30 years. Buy and hold does not always apply. Try to understand that stock market is a game where you are at a disadvantage. It is going to redistribute wealth and bigger share will go to those who are savvy investors, not you and me.
Please study technical analysis and protect your 401k. History shows buy and hold does not work. Look at 20th century price chart and make objective decisions. Do not follow what is in your heart. Accept the fact that we are no different than the generations who saw the stock market trade side ways for 20 years, 30 years. It can happen to us as well.
November 9th, 2008 at 5:18 am
My 401k has dropped over 40 percent since September. Never seen it this low! Even though I’m losing sleep over it, I’ve decided to ride out the storm and hope for the best.
March 30th, 2010 at 8:13 pm
Put your retirement, children’s college, etc. into the stock market???
What better way for market manipulators to steal from you idiots!
A generation’s wealth is being stolen, while you “wonder” if it will ever come back.
Keep loooking down that subway tunnel, it’ll always show up.
October 17th, 2011 at 8:23 am
I am just starting my 401k this year. I was able to do it two years ago but I chose not to because I am not retiring in like forever. I’m glad I didn’t.
The market keep falling since I don’t know when and it’s still falling. Even though I started this year, my account has dropped 18%. That’s insane. If I kept my money in a saving account I would be at least 18% higher now. But at least I’m glad I didn’t start the account in 2008, otherwise it’s probably 50% in the negative.