The whole purpose of funding an IRA or 401(k) plan is to build wealth for retirement over time. But what if your savings keep losing money?
General stock market volatility has impacted a lot of investors over the past year. And it may also be that your portfolio in particular has underperformed. So if your IRA or 401(k) plan balance has been dipping, here's your game plan.
Image source: Getty Images.
1. Don't panic
Many investors go through periods when they can't stop losing money. It's not ideal, but it's also not uncommon. So don't let those losses throw you for a loop, and don't rush to unload assets, either. Instead, take a deep breath and remember that things could easily turn around over the next number of years if you have a quality portfolio.
2. Make sure you have a quality portfolio
If your IRA or 401(k) seems to be losing value at a rapid clip, it could be a sign that your investment strategy needs some tweaks. First, take a look at your holdings and make sure you're as diversified as you think you are. It may be that the value of your assets has shifted since you acquired them, leaving you more exposed to a single volatile sector of the market than you'd like to be.
Also, if you own individual stocks in your retirement plan (a possibility if you have an IRA), do a deeper dive into each one. If there's a stock that's been consistently losing value, that's one asset to consider dumping and replacing with a different stock that has a lot more promise. But that's different than unloading all of your stocks in a panic.
You may also want to consider investing your long-term savings in broad market index funds. That way, you get a nice amount of diversification without having to stress about choosing the wrong companies to invest in.
3. Keep saving and investing
You may be inclined to hit pause on your IRA or 401(k) contributions if your balance has been continuously dipping. But it's important to continue funding your retirement account, especially if you'd like to branch out and invest in more companies.
Remember, too, that when you contribute to a traditional IRA or 401(k) plan, you get a tax break on the money you put in. That alone makes it worth it to fund one of these retirement plans, especially if your earnings have increased over the past number of years and you're now in a higher tax bracket.
Try not to get down
Nobody likes to see losses in their retirement savings given how hard it is to make those contributions in the first place. But don't assume you're doomed to keep losing money in your IRA or 401(k), either.
If the market picks up from where it is today, you could see your balance grow quite a bit. And if you make the right changes to your portfolio, you can potentially break the cycle of continuous losses and turn things around for the better.
