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What to Do When Your 401(k) Loses Value

By Margarette Jung

2018: Q4 Market Downturn (October, November, and possibly December)


38-year period: 1995-2018



You’re socking money away in a 401(k) because you think it’ll increase in value over time and give you something to live off of during retirement. But then you check your account and find out you have less money now than you contributed in the first place, or you’re seeing the value decreasing and you’re alarmed.

Especially since most of 2018 had such great market gains, you may be disappointed with how the markets have been dipping in the last quarter of the year. What should you do now?

The short answer: Do nothing

The overwhelming advice from financial experts and researchers is to do nothing. For many people, leaving their money in the retirement accounts and continuing to make contributions as usual is the best course of action.

Continuing to make the same contributions during market down and upswings is a strategy called dollar-cost averaging, and it can help minimize the risk that comes with trying to time the market.

If doing nothing doesn’t seem like enough, consider the following pieces of advice.

Lessons from recent years: Brexit and the 2016 election

If you had decided to cash out your holdings on any funds tracking these benchmarks after the Brexit referendum results were announced and there was a slight dip in the market, you would have missed out on the subsequent upswing and those investment returns. It’s interesting to note that the IMF and other think tanks expected the U.K.’s economic growth to slow down in 2017, but the performance of the U.K. stock market since Brexit has shown that holding on to your investments in a post-Brexit world would have been a savvy decision.

A similar scenario, though to a smaller degree, happened in 2016 upon the election of Donald Trump. Markets don’t like surprises, and given this political upset, many people considered selling U.S. stock and investing more heavily in international stocks, or just fiddling with their investments in the light of potential economic uncertainty. In late 2018, we can look back and say this barely turned out to be a blip in the market — it wasn’t even significant enough to warrant a labeled arrow in our chart above.

Reevaluate your investments and goals

Regular check-ins are a good idea regardless of your portfolio’s performance, but seeing your account’s balance lower than you’d like could give you an extra push to reevaluate your investments and financial goals.

You may be able to consult an advisor, either within your company or one that’s associated with the 401(k) management company. Or, you could pay an independent advisor to look over your investments and options (make absolutely sure that they’re a fiduciary!). Because of changes in the funds’ values, your age, or goals, you may want to make changes to your investments. This could involve changing your allocations with the investments you already hold, or exploring entirely new strategies. An advisor, or the 401(k) manager, can help you take action with these.

If you are selectively trying to suss out some sort of pattern (domestic funds, tech funds, etc.) and trying to game the market by changing how your contributions are being allocated, here is some recommended reading: Should You Really “Invest In What You Know”?

Should you *increase* your 401(k) contributions during a market downturn?

We don’t recommend this for most conservative investors, but some advisors even see downturns as great opportunities, particularly for those that are saving for a retirement that’s decades away. Remember, your 401(k) is, depending on how old you are, an investment that you’ll be growing over a 20-year, 30-year, or even 40-year period.

Many investors choose to stop contributing to their retirement investments until “things get better”. By definition, when “things get better”, prices will be higher. Waiting until prices rise again to invest more heavily doesn’t make sense because you can buy the same assets while they’re “on sale” now.

Does it ever make sense to stop making contributions or withdraw money?

Deciding to stop making contributions based solely on the market conditions isn’t often a good idea, but there are times when other expenses take priority. For example, if you’re having trouble meeting minimal needs, such as paying rent or buying groceries, that’s a good time to limit your contributions. You certainly shouldn’t be racking up credit card or any high-interest debt just to contribute to your 401(k), either.

What about withdrawing money from your 401(k)? Aside from hardship exemptions as outlined in the plan and by the IRS, many company-sponsored plans won’t let you withdraw money while you’re an employee until you meet the 59-and-a-half age requirement.

If you have money in a 401(k) from a previous employer, you can withdraw it, but you’ll have to pay income taxes plus a 10% penalty. You’ll also lock in your losses and lose the opportunity for growth in the future, because as you saw in the long-term graph, historically the market has always moved up and to the right over time.

Human Interest’s 401(k): Technology vs. emotion

One of the reasons Human Interest was created was to help all people, regardless of their level of expertise and experience with concepts like systematic risk or dollar-cost averaging, save with their 401(k)s in a strategic way that would have a measurable impact on their net worth and peace of mind.

Human Interest has built technology specifically for 401(k)s that mitigates the negative effects (because they typically are exactly that — negative) of emotional reactions to market movements and stock picking. Mathematical, logical, algorithm-based rebalancing is exactly what Human Interest’s investment tool provides (along with great, low-fee index funds that keep your portfolio diversified!).

The automated investing service makes all the investing decisions for you and maintains an optimal strategy even through times that may encourage non-rational decision making. This ensures you’ll achieve maximum expected returns without the academically proven losses that result from individuals attempting to time the market.

In summary: Stay the course whenever possible

Watching your retirement account’s value decrease can be difficult, but often the best thing to do is stay the course. The financial markets often move down and up over time, and if you pull money out or stop making contributions you’ll be locking in your losses and potentially missing out on future gains.