Q: My 401(k) keeps losing money. But other information, including how much I’ll get in Social Security benefits, indicate that I need to put more into my 401(k). Should I keep investing when it is losing money?
D. Little, Fayetteville, NC
A: The question you should be asking is why your 401(k) is losing money, not whether you should keep investing.
Most investors have lost money in the last several years because the
stock market took many dives as a result of the recession. But last
year, for those people who didn’t panic and pull out their money, they
The average 401(k) retirement account rose 31.9% last year, according
to a report by the Employee Benefit Research Institute and the
Investment Company Institute.
Overall, the report found the average 401(k) account balance
fluctuated with stock market performance, between 2003 and 2009; but,
consistent investors saw an average annual growth rate of 10.5%.
“Retirement savers, by continuing to invest paycheck-by-paycheck, saw
the benefits of being in the market in 2009, as stock values generally
climbed during the year,” said Sarah Holden, ICI senior director of retirement and investor research.
You have to invest if you want your money to keep up with or surpass
inflation. Now you can invest more conservatively to minimize your
losses, but that also means you risk less gains. The lower the risk, the
lower the return.
So, if I were you, I would take a look at what I’m investing in. Are
you diversified enough? Maybe, within your 401(k), you are overly
exposed in an asset class that is seeing higher losses than other
investment choices. Find out if the company managing your 401(k) offers
advice. If it does, talk to someone about your investment mix. See if
there is anything you can do to change how you are investing.
Most importantly, remember that investing for retirement is a long-term exercise. There will be times of ups and downs.