Here's What Happens When Your IRA Loses Money

There's a saying that saving for retirement is a marathon, not a sprint. And there's a lot of truth to that.

Retirement is something you might save for over a 20-, 30-, or 40-year period -- or longer. And if you do so steadily, all the while investing your savings in a savvy manner, you might end up with a really large nest egg by the time your career wraps up.

Now, you'll generally hear that it's a good idea to invest your retirement savings in stocks, since they have the potential to deliver strong returns over time that allow you to build up a lot of wealth. In fact, over the past 50 years, the stock market has delivered an average annual return of 10%, as per the S&P 500 index's performance.

But stocks can also be risky. And while it's a good idea to load up your individual retirement account (IRA) with different stocks, there may come a point (or many points) when your IRA loses money temporarily.

That can be tough to cope with. But it's also not necessarily so terrible.

There will be bumps along the way

When you invest in stocks over a lengthy time frame, you're apt to have periods when your IRA loses value. The key, however, is to stay cool when that happens and not rush to sell off investments in that account when they're down.

If you do that, you'll lock in your losses. If you sit tight, you can give your IRA a chance to recover, which it's likely to do.

Remember, the 10% average annual return that the stock market has delivered over the past five decades accounts for both good years and bad ones. But all in, the market has rewarded investors who have stuck with it for that long.

So let's say your IRA is worth $100,000 today, only following a few weeks of market volatility, its value declines to $95,000. If you were to sell your losing investments in your IRA, you'd make that $5,000 loss official. If you were to do nothing, you might find that in a few months from now, your IRA is back up to $100,000. And a few months after that, it may be up to $105,000 -- even without additional contributions on your part.

Don't make rash decisions with your IRA

Rushing to dump investments in your IRA could leave you short on money later in life. So it's in your best interest to keep calm and leave your portfolio alone when its value declines.

In fact, one way to potentially avoid taking needless losses in your IRA is to not check your balance too frequently. It's smart to keep tabs on your portfolio, but a check-in once every three months is generally appropriate. You definitely do not want to be checking your IRA every day, or even every week, because that might make it more likely that you'll see a loss and want to take action on it.

Remember, when you look at your IRA balance at any given point in time, you're seeing a temporary number. If that number happens to be lower than what it was the last time you looked, the best thing may be to just walk away and pretend you didn't see it. Otherwise, you could end up locking in losses that truly hurt you in the long run.