401k is losing money – crash and burn

By glblguy

Hanging on by a hare?

I don’t check my 401k balance often at all. I prefer not to stress about it and just let it grow. I’m investing for for the long haul and know that overtime my money will grow at a 10-15% increase. I do check it though. Mostly to see if I need to adjust my funds distribution a little based on individual mutual fund performance. I logged in last week to see how things were going, especially with the stock market tanking like it has recently. While I wasn’t shocked, I was very surprised…

My 401k is losing money and dropped 20,000 over the past 2 months. Yes, that’s 20 with 3 zeros! I’ve been contributing to a 401k program since the very first day I started working after graduating from college. The percentage varied from 1% – 10%, but I’ve always contributed. Until I checked last week, I had never lost money…never. Seems there is a first time for everything, and what seems to be a trend with me is that when I do something, I do it big time. That was a big time loss.

What to do when your 401k is losing money

I wrote a few months back about what to do if you started seeing your 401k losing money. My advice then was to hang in there and keep investing. The market at the time was beginning a downward trend, but only gradually. Since then the overall decline has become far more significant. Now what do we do.

I’m sure I’ll get a great deal of replies from people that disagree, but I’ll stick with my initial advice: Stay the course. The advantages of a 401k program are far more than just investment growth. There are tax benefits and in many cases employer matching. The money you place into your 401k is removed when your taxable wages are calculated. That means that right now, you don’t pay any tax on your 401k contribution and your taxable wage amount is reduced by the amount contributed into the 401k plan. Not to mention, you don’t pay any taxes on the interest or growth in the account, for now. I say for now, as once you do begin pulling from your 401k later in life, you’ll be required to pay taxes. For this reason alone, continuing to contribute is a good idea.

Dollar Cost Averaging

Regarding stock growth, the important thing to remember right now is the concept of dollar cost averaging. Your 401k is losing money now, but will it continue? With the stock market, their are no guarantees. If you are young and have your 401k money invested in high growth stocks than your risk for losses are high…but your risk for big gains is high as well.

Dollar cost averaging basically deals with the fact that in a 401k program, you are most likely contributing a basically fixed amount into your 401k program. That same amount gets invested each and every paycheck. Sometimes you’re buying stocks low, other times you’re buying high. Right now, we’re all buying low…real low.

Sound familiar? It should, it’s the old stock market golden rule of “buy low, sell high”. Right now, you’re buying more shares for the same money..lots more. When the market does turn and contrary to all of the stock market chicken little’s running around screaming the sky is falling, it will return all of that stock purchased at a low cost will yield high returns.

The math is a bit complicated, but dollar cost averaging basically states that market fluctuations yield higher returns in the long run. Does this mean we should all run out and buy tons of stock and maybe even bump up our contributions? Maybe, but I’m not a fan of trying to “time the market” as this strategy is called. I personally prefer to invest a fixed amount over time and let it average a high return for me. This is the essence of dollar cost averaging.

The tortoise and the hare

Remember the story of the tortoise and the hare? Slow and steady wins the race right? There are of course “smart hares” that by pure luck or my pure skill win big. There are non so smart hare’s that lose big too. I prefer to be the tortoise. I just keep investing at a steady pace and watch my investments slowly and steadily grow. I’m not an investment guru, nor do I even pretend to be one. What I do know is that over the 15 years I’ve been investing, my 401k balance has slowly grown. Sure it’s losing now, but that’s just part of the ebb and flow of the market.

My advice? Hang in there and don’t watch your balance daily, weekly, or monthly. Just let it slowly grow over time.

The only caveat to this advice is if you are older and closer to retirement. If that’s the case, I’d highly recommend you engage a professional to get some advice. Being closer to retirement, you have less time to recover your current loses and it just might be a good time to move your allocations into more stable funds.

What are you guys doing with you retirement money? Are you staying the course, making changes, stopping contributions? Share your perspective and thoughts. Add  a comment!

Photo by: CharlesLam

19 Responses (including trackbacks) to “401k is losing money – crash and burn”

  1. ABCs of Investing Says:

    I`m staying the course and continuing my contributions. If you switch out now – it`s too late!

    I`ve got a few years to go before retirement so this is just a small bump in the road.

  2. Laura Says:

    Good reminders. It’s not a sprint, retirement is long term. Our retirement funds have gone done, but we’re still contributing.

  3. Jeff Says:

    Totally agree with what you said. A few months back I checked my 401k and found that I had a -4% return over the last 3 years. That’s negative four percent. I haven’t checked since then, and I’m assuming I’ve passed -10% at this point. I’d rather not confirm that as it would just upset me. I’m hanging on at stable contribution levels, in part to maintain the company match, but mostly because I have faith that the market will rebound eventually and I still have a ways to go before retirement. And I’m loving the fact that I’m getting way more stock for my money at this point. At this rate, I’ll be a gajillionaire when the market finally shoots back up.

    (Yeah, that last bit was facetious.)

  4. Scott Says:

    In the vain of misery loves company, I just checked, and my biggest 401k has also lost $20K for the year. Like you, I’ve not taken any action, but that does bring up a follow-up questions. I have two 401k accounts because my company was bought-out. The old one (much larger balance) is the one that’s taken the $20K hit, and I am no longer able to contribute to it. Does rolling it over to the contributory 401K do me any good? Is it bad timing to roll it over now after its taken this big hit?

  5. Curious Cat Investment Blog Says:


  6. Curious Cat Investment Blog Says:

    Good advice I am actually looking at increasing my contributions. I think the prices are attractive and adding some extra now could pay off nicely later. And while I am far from certain we are at a bottom now, taking advantage of dollar cost averaging over the next year (on long term investments) seems like a good bet to me.

  7. SingleGuyMoney Says:

    Crash and burn is a great way to put it. I have been trying not to look at my account but I couldn’t resist looking today. I am down about 10,000. I am not doing anything besides making sure I am investing in good, quality investments.

  8. thebaglady Says:

    Great article. Glad you’re staying the course. Anyway, one little thing is that it’s the tortoise and the hare. Hair means what’s on your head, and hare is the bunny.

  9. glblguy Says:

    @Scott – Scott, I am honestly not sure. Since you own shares in one plan, I would suspect when you roll,the convert the investments to cash then do the roll-over and re-allocate into your new funds. That’s just a guess though. That’s a question I would take to your 401k adviser or a retirement professional. That could potentially cost you big time if you made the wrong decision.

    @thebaglady – I just KNEW I was going to do that. I knew the difference, and darned if I didn’t make the mistake anyway. Oh well…corrected and thanks for catching that.

  10. hank Says:

    2 parts –

    @Scott – if you don’t have any more control over it (can you still reallocate it at all, or just no contributions?) I’d certainly look into rolling it over to a ROTH or Traditional IRA to get more movement on it. I’d chat with someone on any of the “live chat” options offered by the big boys in the industry.

    @GLBLGuy – I wrote the same thing in my post today. I’ve lost 23% of my investment as well, but staying the course is my plan also. I think of it “glass half full mentality” and know that I may be losing out now, but I’ve got many years ahead of me and I’m buying good funds at 1/4th the price I was buying them earlier in the year.

    Stay the course I say also, panic is one of the worst investment mistakes if you’ve still got a long way to go…

  11. Dan Says:

    I’m increasing my 401k contribution. This is a gift horse opportunity to buy stocks on the cheap. We may never again in our lifetime see the DOW under 10,000, and it’s reasonable to say that within 5 or 7 years, it will be at 20,000, and we’ll be kicking ourselves for not buying more at such a low cost.

  12. No Debt Plan Says:

    The plus side of losing $20k is that you had $20k to lose :) My 401k is just a few thousand, so the downs don’t hurt as much.

    Long time horizon means you have time to let it recover…

  13. Frugal Vet Tech Says:

    I like the turtle picture!

  14. Andy Says:

    I just reviewed by 401K and based on some back of the enevelope caluclations (which I wrote about) feel that it may not be a bad idea to reduce your 401K investments for now and get back in when the market stablizes. Investing in stocks is tough nowadays.

  15. No Debt Plan Says:

    @Andy: My initial reaction is to flat out tell you you are wrong… however, it does depend on your investment horizon.

    What you are suggesting is timing the market. Right now the market is down. You want to buy when down, sell when up, right? Not the opposite. Your gut tells you to sell low and buy high. Sticking to an investment plan is critical, regardless of the ups and downs of the market.

  16. Brad Says:

    I know when I am sitting here watching almost everything in my 401k and other small stock holdings tank, my first reaction is sell! My I gotta get grip on myself. I am a few years from retirement and I never want to “buy high and sell low”. I am sticking to my plan. Thanks for another good read.

  17. Financial Independence Says:

    Two facts, as food for thought:
    – Only 202 of the 500 biggest companies in the United States in 1980 were still in existence 20 years later.
    – On December 29, 1989, Tokyo’s Nikkei stock average reached its all-time peak of 38,915.87. Twenty years later, the Nikkei has never again reached that level — and, in 2009, reached a new low of 7,054.98.