My 401(k) Is Losing Money, What To Do?

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401K DyingMy 401(k) is hemorrhaging but I’m not freaking out. I’m not freaking out because I’m 28 and years away from retirement. However, several readers have emailed me recently asking me what they should do about their 401(k)’s and IRAs after recent events. Unfortunately, I told them to call up a financial adviser because I don’t really have a suitable answer. But this afternoon I spent some time thinking about it and wanted to give a more reasonable response. I tried to put myself in their shoes and say what I would do.

If you’re like me, about forty years away from retirement, the answer is that you should do nothing differently. Make your regular contributions, check your asset allocations, and do something else with your time. A lot can happen in forty years so you shouldn’t do anything rash like liquidate all of your assets. We had a recession in the 80’s, a mere twenty years ago, and since then we’ve seen the longest bull market period in a very long time. Trying to time the market is a fool’s errand and, honestly, your time is better spent enjoying life rather than fretting about your balance sheet.

If you’re slightly closer to retirement, say ten years away, now’s a good time to adjust where your new contributions are going and go towards a more conservative allocation. I wouldn’t liquidate your equity positions but any new money should go towards conservative investments that will lower the amount of volatility you’re exposed to. Check out the1-year chart of the CBOE Volatility Index, an index that tracks the 30-day volatility of the S&P 500 index using a variety of investment vehicles. Note the fact that since August, that index has been going insane. The enemy of a retirement in the near future is volatility. While I wouldn’t sell everything off, I would adjust my contributions to lower the volatility by going with safer investments.

If you’re a year or so away from retirement or in-retirement, hopefully your exposure to equities is limited. Either way, chances are your investment portfolio went down along with everything else. For retirees, I don’t know what the right answer is except that you might want to consider getting some supplemental income to buy more time until the market has an opportunity to somewhat correct itself. I would liquidate enough funds, from equity positions, to make it through the next three to five years and keep the rest as is. But remember, I’m 28, so I would take that advice with a very large grain of salt.

Do you have any better advice?

(Photo: silvaazniv)

{ 37 comments, please add your thoughts now! }

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37 Responses to “My 401(k) Is Losing Money, What To Do?”

  1. JL says:

    OK, the prevailing “wisdom” is that a Bond Fund should be a relatively safe, yet unexciting place to stash money. Even the prospectus for my 401k’s one and only Bond Fund describes it as “stable” and “conservative”. So when this whole stock disaster started, I moved my money there after losing “only” about 10%. That was in September. Since then my portfolio has continued to shrink a LOT, as the “Broad Market Bond Fund” I expected to be a shelter has gone down whenever the stock market as a whole has gone up, and has gone down whenever the stock market as a whole has gone down. In short, it only seems to go DOWN. How can this be? The fund’s own paperwork describes it as follows: The Fund employs sophisticated indexing methods to construct a portfolio that closely matches the characteristics of the Lehman Brothers Aggregate Bond Index….. Basically, it doesn’t actually OWN any of the securities etc. It is described as being made up of mostly Treatury Bonds, Government/Municipal Bonds, and so on. Am I missing something, or is this just a false prospectus? Apparently, you can’t sue a 401k manager for stealing your retirement savings, but it sure seems as if that’s what’s happening here. Every day…..

  2. Jeff Rose says:


    Unfortuantely, you’re frustration is shared by many. In your comment you had mentioned “government” bonds which depending on the terminology of the prospesctus could include the household favorites of uncle Freddie and aunt Fannie. Since they were supposed to be “implicably backed by the government” your principal was supposed to be secure. As your bond fund has indicated, this is not so. There may be others powers at work here. But my suspicion hints at at some of the previously mentioned.

  3. Dean says:


    Could you please settle a argument for me. My friend and I are both in our mid 40’s. Like many, i have suffered a paper loss of more than $100k on my 401k. He is a “nervous nellie” type and is changing his 401k allocation to mostly cash. I tell him to just ride it out and that he is actually contributing to the market decline by moving stocks to cash. He says I’m crazy. Who is right?

    Thank you

  4. Jeff Rose says:

    @Dean. Time will tell, but you both may be right. Also, greatly depending on when your buddy sold. I had a gentleman I was talking to over a year ago that moved completely out of the market when the Dow hit 13,000. When the Dow hit 14,000 his peers thought he was stupid for missing out (I must admit myself included). Well, a year later he is still in cash and guess who has the last laugh? Obviously, this is a rare example and rarely happens. If your buddy just sold when the Dow hit 7500, then you will definitely have the last laugh. But if he did it when it was till above 10,000, he might have a case. Unless if he waits until it’s over 10k again, then it won’t really matter. It may take 12-18 months from now to prove yourself right. And Dean, if you truly “crazy” then welcome to asylum because there are bunch of lunatics that are doing the exact same thing, myself included.

  5. Gates VP says:

    @Dean: …He is a “nervous nellie” type and is changing his 401k allocation to mostly cash. I tell him to just ride it out and that he is actually contributing to the market decline by moving stocks to cash…

    Neither of you is “right”.

    What is “right”? Who has the most money in 2009, 2015, 2030? Are you asking for correctness in terms of basic stock market “game strategy”? What are your risk tolerances?

    In fact, your assumption that there is such a thing as “rightness” here is the fundamental flaw of your question. Jeff Rose is indeed correct, you may both be right. Anyone promising otherwise is just selling snake oil.

  6. Peg says:

    My 403B is down 38% since Jan. ’08. I am invested in moderately aggressive mutual funds. I have 12-15 years until retirement. What should I do?

  7. Jeff Rose says:

    @Peg…First, I want to reassure you that haven’t done anything wrong. Many of us are down the same amount if not more. The easy answer is to say leave it alone. If you have quality investments then that will be the case.

    But, it also might be a good to review the actual mutual funds you own. You will want to look at expense ratios, their holdings (did they own Freddie Mac, Lehman Brothers, AIG, etc?), their peer ranking group (how did they compare to all the other funds in their class?). Finding some of these answers may help to see the likelihood of recovering what you’ve lost. If you don’t like what you find explore your options for switching. I’ve seen plenty of crummy 403b’s in my time.

    FYI.The 403b is getting a major overhaul which makes things difficult to switch until the new year.

  8. Gates VP says:

    @Peg, you’re floating in the same boat as Dean here.

    @Jeff Rose provides a good “generic” answer (no offense intended Jeff), but with the amount of information you provide nobody can give you a “really good” answer.

    Here is a sampling of the additional you’d need to answer:
    – What is your expectation for retired life? How long do you figure you’ll live? Are you willing or able to be “semi-retired”? Are you planning to keep your current home, do you want to move closer to the kids? If so, do you rent or sell the home?
    – How much money do you figure you need? How much do you currently have (now that you have 38% less)?
    – Do you have other non-work, non-403B income available now? In 12-15 years? Does your spouse?
    – What is your tolerance for working beyond those 12-15 years?
    – How is your current cash flow? Can you invest money elsewhere, do you have emergency funds saved up? Do you have adequate insurance coverages for health, home and auto?
    – How is your health? How will it be at retirement? How is it influencing your ability to continue working past 15 years? How are your life’s stress levels?
    – Have you ever taken a sabbatical (or equivalent)? Would 6 months on the beach tomorrow be better or worse than a year on the beach in 2025?

    If you get where I’m coming from @Peg. “Retirement” is a phase of life like “childhood” or “university” or “raise family”. Just like everyone has a different concept of “childhood”, everyone has a different concept of “retirement”. Any specific advice will be limited by the advisor’s vision of “retirement”.

    So let’s flip this around.

    In general, during your “retirement” phase, your goal is to work less (or not at all). For most people, their primary stream of income has been work. At retirement, you’re shifting gears and your primary stream is going to be the 403b investments. Most people don’t like lots of risk, they want a consistent income. The current (emphasize “current”) best sources for consistent income comes from interest-bearing securities and dividend-bearing securities.

    Interest-bearing: Bonds, T-Bills, Money Market, CDs, etc.
    Dividend-bearing: certain Stocks, rental homes (or other units, some assembly required)

    However, over the long-term it’s unlikely that these vehicles will significantly out-perform inflation, so you’ll have to manage the amount of money generated and consumed. And if you’re invested in Dividend-bearing securities, you will have to manage/watch those dividends. It’s a weird game in that you mostly don’t care about stock prices (b/c you generally don’t want to sell, but you do care about dividend-to-stock price ratios and such).

    So if your goal is a retirement with stable income, then you likely want to start making the shift towards “Dividends and Interest”. But please be aware of my caveat, you probably won’t beat inflation by very much with “Dividends and Interest”. That means that you won’t actually “grow” your money very much with these investments, you’ll just defend it.

  9. Allen says:

    I am 2 years away from retirement and I’ve lost $27,000 my Thrift Savings. I don’t thing I will ever recover it, because I really want to retire. What should I do to keep the rest of the money?(I have about $50,00 left if Thrift Savings)Should I put it in a money market for now or keep it where it is?
    Thanks, Allen

    • Michael says:


      This is a fairly common problem. There are a couple of factors here. If the money in your Thrift Savings is your only potential retirement income, you would probably have difficulty retiring even without losing the $27,000.

      Given that you are so close to retirement, you likely should reallocate to the more conservative options in the Thrift Savings plan.

      Be sure to ask yourself this question: “Based on what I know, do I expect that my current investments will be in a worse state in two years than they are now?” If yes, then the money market option would make a lot of sense. If no, then maybe that means you’ll have recovered some of that loss. Granted, we don’t really know for sure. I have been hearing people talk about the current economic situation lasting 3-5 years. However, I have recently heard talk that the S&P 500 could be back up 20% from where it is now in a year.

      If it is an option, I would lean towards trying to leave your Thrift Savings money alone. Assuming you have other potential retirement income, such as social security, you can live off of that while you give this other bit of money some time to recover. In reality the $50,000 (or even the previous $77,000) wouldn’t go very far whether you have other retirement income or not. With that in mind and considering that the difference isn’t real big, you may just want to do whichever one causes you the least stress. Good luck!

  10. Brian says:

    Its unfortunate this current situation with 401K. the best investment no matter your age is to get out of debt. Pay your debts off. the percentage rate on debts is outrageous. Im out of debt and make 50 some thousand a year. Im richer than my coherts who make 100+ thousand ayear. save. Pay off mortagages. you will be sitting better when your older.

  11. F1SHN says:

    Lost 300K in the pst 5 years with Morgan Stanley…. unsure how it happened… just saying… my Financial Advisor was a great salesman.
    His outlook was always upbeat and… it will come back. Only a couple of months made more than my monthly distributions….

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