Two in five workers reported that their retirement savings have taken a dip in the last year, according to the latest Retirement Confidence Survey from the Employee Benefit Research Institute. Of these, nearly 40% saw their portfolio drop by more than 15%.
No one likes losing money, so it's not surprising that the majority of these workers are concerned about what this will mean for their futures. But you may not need to panic just yet. Here are three signs that the losses you've sustained may not be worth losing sleep over.
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1. You've invested in strong companies
Losses don't always indicate that you've chosen poor investments. Even the strongest companies have their bad quarters, and that's not necessarily an indication that you need to sell. Often, if you leave your portfolio alone, it will rebound in time.
When a stock's share price takes a dip, that could even represent an opportunity for you. If you buy when prices are low and they later rise, you could wind up with more earnings than you would've had if you'd bought your shares when prices were high.
Of course, this isn't always the case. If you fear that a company is making poor choices that will affect its long-term value, then it might be worth selling that stock and investing in a company you believe has a brighter future.
2. You've diversified your savings
Diversifying your portfolio means spreading your money around in many stocks so no single one weighs too heavily on your portfolio. This is a good practice for all investors in all market conditions, but it's an especially good idea when you're worried about losing money. Diversifying can help you minimize your losses, compared to investing heavily in one or two companies.
A diversified portfolio isn't a guarantee that you'll never lose money. But if you've invested in at least 25 different stocks in a few different sectors, you probably don't have to worry about your savings tanking sharply.
If you're afraid you've invested too heavily in some of your stocks, diversifying could give you some extra peace of mind. An easy way to do this is to invest in an index fund. These are bundles of stocks that mimic the performance of a market index, like the S&P 500. They're usually pretty affordable and spread your money around in many sectors.
3. You don't plan to withdraw your savings anytime soon
It's important to keep your retirement timeline in mind when making decisions about your investment portfolio. Stocks can be volatile in the short term, but they often deliver strong returns over the long term. If you're decades away from retirement, it's probably not that big a deal if you lose a little bit of money now. You'll have plenty of time to make up for this before you need to withdraw your savings in retirement.
It's a different story for older adults who plan to use their nest egg soon. In this case, you'll want to limit your exposure to stocks to protect what you have. One rule of thumb is to invest 110 minus your age in stocks. So that would be 60% for someone who is 50. Keep the remainder in less volatile assets, like bonds.
You ultimately have to decide whether it's time to make changes to your investment portfolio in order to avoid future losses. But before you make any adjustments, think through the long-term implications of your choice. Try to avoid making emotional decisions based on a stock's short-term performance whenever possible. Saving for retirement is a long game, and by the time you get there, you probably won't even remember the small peaks and valleys your portfolio went through along the way.
