My 401k Is Losing Money. What Should I Do?
By Pinyo • Oct 9th, 2008 • Category: InvestingMy 401k dropped over 30% so far this year. It’s heart wrenching to see several years of diligent savings wiped away. There are many bloggers that are in the same boat — e.g., Gather Little By Little, Paid Twice, My Two Dollars, Blueprint, Bible Money Matters, Financial Nut, etc. And it doesn’t take a genius to figure out that many of you are in a similar situation.
I hope we can have an open discussion about this topic so be sure to add your comment below.
Personally, I am keeping my contribution the same as it was before. If the stock market maintains its historical characteristics, then this is a great time to buy. Secondly, I haven’t rebalanced my portfolio yet, because my allocation is still within the targeted range. For some of you, this may be a good opportunity to rebalance to do more “buy low, sell high.”
The only change I have done is changing how my future contributions are invested (note: I am not moving existing money from equity to fixed-income). This Bear Market highlighted the need to have a bit more fixed-income to soften the impact of down market, and provide greater ability to rebalance money into equity investments.
In any case, I have no plan to pull out of the stock market at this point.
How about you, how is your 401k doing? And what are you doing or have done as a result of the financial crisis?
All posts by Pinyo
My 401k is dying like most others. I am actually using this time to record my emotions and thoughts in a journal, something I had never done. It is one thing to look at an investing questionnaire and assume you can stand watching your balance cut in half, it is something different to actually have it happen. So far I am actually ok with what is happening, but it may get worse. I think in a few months or a year when things calm down I will reevaluate my asset allocation plan with a clear mind not filled with fear, but with the written record of how it felt at the time it was happening.
I have been accumulating cash since 11/2007 (the approximate market high) for two purposes: pay off our mortgage in 12/2008 for a guaranteed 6% return and to rebalance our retirement accounts in 11/2008, after the election and hopefully when the market volatility indexes have dropped somewhat. There should be some good bargains to be had at that time.
My 401K investing has gone down 31% in the past few months. However, I haven’t changed a thing. I’m not even 40 years old yet - I’ve got a ways to go before I dip into that retirement money. My contribution is set to go up 2% in January and I’m hopefully that I’ll be able to continue to “buy low” as my contribution goes up to 10% from 8%. My portfolio is a mix of high risk and conservative investments and I’m content to let them stay there knowing that it’s another 30 years before I need the money.
I have maxed out my 401k. I am actually considering opening up an IRA so that I can take advantage of the low market.
My 401k has dropped just like everyone else, but I’ve only been investing in it for 2 years due to my youthful age. So the drop, in terms of actual dollars, has been lower than a lot of others that have been investing for years.
I actually changed from having a small bond exposure (3%) to 100% equities to further buy low and sell high. I’ve got 30 years to ride this puppy out.
What we’re seeing here is unprecidented. My portfolio, constructed with advice from some leading finacial manager, was ripped to shreds. When equities as a class get hammered, it makes little difference how you’ve allocated the funds in that. The fall in the S&P is akin to what happened in the 30s. What makes this different from the 30s though is the global nature of the calamity and the speed with which the deline has moved. Nobody knows where this will wind up and when.
So, after hanging in there since last October, priding myself on my discipline to keep in the market after the slow decline, I pulled everything the day the DOW dropp 777 on the failed vote. Of course I had to live thru the bounce the next day but that trade proved correct. I’ve saved another 10% of my portfolio. I’ve gone into gold and high yield savings accounts (one @ 5.5%) protected by the FDIC.
My belief is that we’ve not seen bottom and when we do, it will be a very slow climb out of the hole we’re in. I beleive it will take 3-5 years and during that time, yields on the equities (less dividends) will like be 3-4% at best.
I’m down nearly 20% year-to-date, but I don’t mind. Actually, I’m looking forward to taking advantage of the current “fire sale”. I’m currently maxing out my company’s 401(k) match, but I’m debating on whether to put in more money now to take better advantage of the situation.
One of my co-workers is really worried, but she has about as long as I do until retirement. I’m still trying to get her to recognize the advice I wrote yesterday about not caring about wild swings right now. It’s not like we’re going to see/need/touch that money for at least 3 or 4 decades. Now, if I was hoping to retire next year, I’d be worried…
Like everyone else here, I too have taken a beating on my 401k. I currently contribute 14% of my salary and am not yet 40 (though 3 short years away). While I did not change anything on my current set up, I did change all future allocations to cash reserves two days ago, just for the interim until I get a better feel of where I should divert my money. I have no intention of stopping my 14% contribution or lowering it. If anything I might just go ahead and increase it to that final 15%.
p.s. Love your website - Very informative!
My current asset allocation is about 55% domestic stocks/12% international stocks/30% fixed income/3% cash. I haven’t touched any existing money. I haven’t changed my 401k contributions. I’ve been hammered like everyone else.I’m 49 with 11 years to go before planned semi-retirement.
What i AM doing is steering more $ toward an online money market that now contains only $4500 for any unexpected job loss and also becus in about 3 years or so i may need to buy a new car, and the $ i would normally use for that is all in taxable mutual funds.
I have boosted my retirement funds to the maximum allowable limits.
I could care less about the balances on my 401k & Roth IRA because I can’t touch them for another 30+ years anyway. As long as I’m buying quality companies through my mutual funds, I’m ecstatic to be getting such a chance to buy excellent blue chip companies at such a steep discount.
As for rebalancing my portfolio’s, I’m 100% into equities at this time.
“It’s heart wrenching to see several years of diligent savings wiped away”
I would not frame it like that. No years have been wiped away 100%.
If you had $100,000 and lose 30% = $70,000.
If you got to $70,000 and stopped contributing = $49,000.
Assuming you are allocating based on your age, goals, etc. I was tempted to “daytrade” my 401k earlier this year, but I’m young-ish and being right once might have been more dangerous in the long run. I’ve held cash outside of retirement this year, but am trying to be a mindless machine within 401(k). Looking forward to 401(k) bonus later this year, 100% equities.
I just wrote a post on this topic tonight:
Resisting the Urge to Invest
Changing your allocations, or worse — pulling all your money from the market, is really not a great idea. It amounts to market timing, and history as shown that market timers don’t do nearly as well as buy-and-holders.
Stop looking at your 401k balances!
Ah.. the joys of staying away from the 401k investment trap are finally paying off - and in a big way.
I agree with everyone that it’s a tough time to be in the market, and watch our accounts go down, but I believe we have to remain committed to our investment strategies (assuming they are based on solid asset allocation strategies). It has been shown time and again that the market rebounds and when it does, it has been shown to rise by roughly 34%, on average, within 12 months after the market bottom. Within two years of the hitting the market bottom, the S&P 500 average increase is roughly 55%. Talk about making up what you lost, and then something.
Granted no one can predict what the future will hold so it’s imperative to have a properly allocated and diversified investment strategy based off your risk tolerance and time till retirement. This doesn’t mean picking all the funds available to you, but rather building a portfolio that includes all the major asset classes (Lg Cap, Sm Cap, etc).
For someone nearing retirement age, they should probably be more conservative, while someone with 20 or 30 years till retirement, as a previous poster mentioned, can stand to continue to invest more aggressively. I know it’s tough with how the market is, but now more than ever it is time to have a good game plan and stick to it. If you’re not sure how to come up with a game plan for retirement, consider using an advisor or doing a bit of research online.
Jeff Studebaker, Investment Advisor at Smart401k.com
My 401k has lost about 25% and so has my husband’s. But not much we can do right now except hold tight. We have about 17 years before retirement, so we can’t pull the money out with substatial penalities. We are still both contributing so hopefully the “buying low” will help us out. About 1/2 my money is in a target date fund, and 1/2 of it is in a fixed annuity (fortunately - otherwise my hit would’ve been a lot bigger).
As one of the “experts” on tv last night said - either plan on working longer, scaling back retirement or living more frugally now and investing more now to make up the difference. I think we’ll go with a combo of all 3.
I would continue to invest in my 401k plan on a regular basis because investing for retirement is long term investing, things will eventually go up in time.
My 401k has dropped 28%. I retired early two years ago at 55. So, I haven’t been contributing to it since. My allocation is 60-40. I don’t plan on touching it for at least five more years. That’s the good news. The potentially bad is, I’m a General Motors retiree. Hope they don’t go bankrupt. Don’t know the full consequence of that.
@Steve - I love how you are approaching this. My emotion usually range from amazement and a little bit of disappointment, but in the end I laugh it off and keep on going.
@ToughMoneyLove — Congratulation on paying off your mortgage in just a few month. That’s a great accomplishment.
@Jaynee — My thought exactly.
@BT — Yeah, I have been adding money to our IRAs this past week.
@Kevin — I think you’re on the right track, starting young and all. Don’t forget to gradually bring up your fixed-income portion as you grow older.
@Larry — Are you planning to move money back into the stock market at all?
@Caveman — She’s lucky to have a friend like you to guide her.
@Mary — Wow, retiring in 3 years and you’re not yet 40. I’d love to hear your story about how you are doing this. And thank you for the compliment…much appreciated.
@Fern — Sounds a like a plan. It’s never a bad thing to beef up the emergency fund especially in this economy.
@Matt — I like that confidence!
@Sean — No, not 100% wiped away but nearly 40% still hurts.
@MITBeta — Great article and I think you’re right on. Reacting to daily changes is probably the worst thing anyone could do.
@Curt — How do you invest for retirement?
@Jeff — Interesting numbers.
@Susan — I think 17 years is still quite a long way off. If history repeats itself, we all should be fine.
@Glinka — I think GM will survive, but in any case it wouldn’t matter because your 401k is probably being managed by a third-party 401k plan administrator.
Don’t understand what you mean by “your 401k is probably being managed by a third-party 401k plan administrator”. I thought GM funds the plan but if they can’t at some point the funds in it go to the government and they then issue, at a much lower amount, a pension.
@Glinka — Oh, I am sorry. When I read it, I assumed that it was a 401k plan. I should have realized that it’s a pension plan. I don’t know anything about GM pension plan, but found this article that may be helpful:
http://www.nytimes.com/2006/10.....nsion.html
Sorry about that!
Sign me up for dropping 30% as well. Not the end of the world, and I’m in the same boat - not going anywhere soon; we’re getting in on a good buy if you’re confident in your 401k choices…
On the 9th of October I had a financial advisor redistribute my allocations into a better (hopefully) mix. Was this a mistake at a time when the market was so low? I am 41 and have 25 more years ahead of me in the workforce.
I think you were right to maintain your investment levels, recent months have seen a marked crash, but like anything it will recover, i think that 2-3 years down the line the stock markets will have rebounded significantly