Losing Money. What Should I Do With My 401k?

Losing Money. What Should I Do With My 401k?

My 401k dropped precipitously. 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, 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.

Common questions about 401k

S&P 500 Performance

Many of us a asking questions like:

  • Should I continue to invest in my 401k?
  • Should i still invest in my 401k?
  • Should i still contribute to my 401k?
  • Should I take out my 401k?
  • Should i take my money out of my 401k?

I hope we can have an open discussion about this topic so be sure to add your comment below.

Keeping my 401k investing plan the same

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?

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Losing Money. What Should I Do With My 401k? 1

34 thoughts on “Losing Money. What Should I Do With My 401k?”

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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…

  7. 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!

  8. 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.

  9. 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.

  10. “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.

  11. 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!

  12. 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

  13. 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. 🙂

  14. 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.

  15. 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.

  16. @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.

  17. 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.

  18. 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…

  19. 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.

  20. 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

  21. If you were on fire would you put yourself or put yourself out or let yourself burn. I will start off by saying I am by no means a professional investor nor do I blow any horns. but I would like to say after reading these blogs and listening to many others whinning about how worthless their 401K has become has tempted me to share my experience. Sure I have lost a lots of money before somebody told me ( If you were on fire would you put yourself or put yourself out or let yourself burn)
    since thoes words I make it a habbit of losing no less than %5. believe me am up 3% on the year so far in my 401K. It is amazing when you see the market start taking the nosedive I simply pull my money to the sidelines and watch everyone like yourselves tell me I will come back I am going to let myself burn. Well good luck and happy investing. I actually love these times because when the bottom hits, where ever that may be I will push my cash in the market and gain a quick 30%.

  22. It’s refreshing to see that the “my money cult” is still as insane as ever. What you’re witnessing right now is the collapse of the post Bretton Woods system.
    This sucker aint coming back. If you’re lucky you may get to witness the onset of a new dark age.

  23. It amazes me how you people speak of the market coming back as if it’s some law of nature. I’ve got one word for you: Japan. Their market topped out in 1990 and has NEVER come back. Take a look at the chart–it’s now only 25% of what it was 18 years ago! Do you really think it’s coming back?

    The buy and hold strategy is based on several fallacies. First, that the market will continue to rise over the long run. Well, that premise itself depends on fragile underpinnings–that the population will continue on a constant upward trend, so that companies can sell to more and more consumers. And what does that premise depend on? Cheap energy. Well, guess what? In spite of this temporary collapse of energy prices, and in spite of what you hear from the head-in-the-sand denialists, energy in the future is going to become VERY expensive. That will curtail population growth in the developed world, and severly hamper all commercial ventures.

    In short, it is foolish to take a 100 year period of time in all of human history and propound it to represent some law of nature. The Romans had a saying, “You can never cross the same river twice.”

    There has never been a time like this. You want to bet your future that things will just roll along as usual? Go ahead. You just bought into the Ponzi game that has been the stock market for the last 20 years. Good luck!

  24. Can the U.S. be the next Japan? Are we seeing the end of capitalism? Is the Armageddon coming?

    I think anything is possible — even the greatest empires in history fall — but for now, I am staying the course based on prudent investing approach.

    Yes, if you do know when the market will recover, or where is the best place to put your money….please do tell.

  25. It’s interesting to see the opinions and comments expressed here from a behavioral economics standpoint. Whether the sky is falling or America is going the way of the Romans is outside of my expertise, but as always, I would suggest that “our” investments should revolve around companies that provide products/services that we can’t live without. Whether that’s clean water, fuel for your car, or toilet paper to wipe your backside… that’s your decision to make.

    Perhaps the best way to answer the argument is deciding what large quantities of people will need in the future, and investing in those companies when they are adequately valued.

  26. All right. So my last post might have come off as a little strident. Allow me clarify a couple of points.

    First, I don’t believe in Armageddon. I think the human species will survive no matter what you throw at it–especially the top 1%, which will always outsmart the other 99% (hence the stock market game).

    Second, I believe that capitalism, or some watered-down form of it, is here to stay. There is no better motivator for inovation than human greed.

    Therefore, I am not saying that money cannot be made in this system. On the contrary: Great amounts of money can be made in this system precisely because most of the participants are wrong most of the time.

    I pointed out that the Nikkei average is now 25% of what it was 18 years ago. But actually, adjusted for inflation, it’s probably more like 10% of what it was. Now take a look at some of the conversations on this page, and you might be able to imagine a 45-year-old Japanese investor making these same arguments in the year 1991. If that investor were diversified in the market, his savings would now be worth 10% of what it was then, and now he’s getting ready to retire.

    So you say, “Well that’s Japan, this is America.” Well, look at the Dow. You might think that it regained its high last summer when it hit 14k, but adjusted for inflation, it would have needed to hit about 17k. And now, with it at 8k, and adjusted for inflation, it’s about where it was 11-12 years ago. That means you could have stuck your money under a mattress for the past 12 years and done as well as the Dow, or S&P.

    “But wait”, you say. “A mutual fund is actively managed. It doesn’t just blindly follow the indexes.” Well, you’re right, and that’s actually even worse news, because 90% of mutual fund managers can’t even match the S&P. Imagine that: 90% of mutual fund managers can’t make good enough decisions to maintain the value of your savings at what it was 12 years ago!

    All right, so I’ve dissed on the system enough. You asked where I would put my money. The “where” changes all the time. That’s the difficulty of this system. And that’s why people who realize that this is a traveling carnival can make vast amounts of money, while others are just donators.

    But there are two kinds of “where’s”–short-term (what will the herd do next?), and long-term (where can I put my money so that it will appreciate in the next 10 years). As for the short-term, that’s anybody’s guess. Watch CNBC, use your stock screeners, ride the moves for a day or two, and get out. That means you have to be a full-time trader.

    But most of us have jobs, so the long-term is where most investors focus, and rightly so. Time can be a great equalizer–if you’re in the right vehicle. Prices often get pushed to extremes by people who cannot ride out a move longer than a couple of days because they’re so heavily leveraged (witness oil or natural gas).

    So what is the right vehicle? Something that people will want to buy in the future…or something that people will need to buy in the future….or something that people will HAVE to buy…in the future. That could be a stock, it could be a commodity, but it’s not the stock market. In fact, I believe that diversification is the second biggest myth about the market (after the rising-market myth).

    What I’m saying is, don’t trust other people with your money–mutual fund managers get paid whether they make you money or not. Do your own analysis. Formulate your own ideas. And don’t fall for the assumptions pushed by some talking head on TV who has never made a dime in his own account. I mean, really, how many times do you have to see these guys call a bottom before you figure out that they don’t have a clue? So why believe them when they say “the market’s going to rally back. Time to get on board!”

    Think. That’s what I’m saying.

  27. All of you are really silly if you think any of that money is going to be there. It won’t even be there in 5 years, let alone 30. All that money is lost, plain and simple, and it is NOT coming back. This is the end of the US financial system, welcome to the NWO and wealth distribution. You all really need to wake up and pull your large rear ends off the couch and from in front of the TV soaking up the lies from Fox and CNN.
    This is all so very pathetic, what’s become of this once great nation.

  28. Realist: Thank you for your post and your intellectual perspective on this. Most people tend to believe and regurgitate what’s being spoon-fed to them over tv, radio, news outlets in regards to this mess and how to weather through it. I’ve been grappling with what I should do with my 401K–whether to continue to watch the bloodletting in some baseless hopes that this thing will miraculously turn around in 10-15 yrs.; or pull out and make some independent judgments on how to invest and protect my investments (thereby taking the hit in tax penalties since I’m nowhere near retirement age). It’s hard to know what to do, or what’s in my best interest in the long term. But like you, I have a hard time trusting the advice of those who’ve been complicit in the system that’s failed us all. Those retirees who’ve followed lock-step with the advice of financial “experts” and advisers are all screwed now. It is time to wake up and think for ourselves now.

  29. The power of money is really nothing. It comes and goes with the trends of the market. Goods and realestate are the way to invest. I am kind of a physiocrat though.

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