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401(k)s have lost value due to market downturns, but those losses aren't necessarily permanent.

Average 401(k) Losses Don't Necessarily Mean You Should Stop Investing

Kathryn Underwood - Author
By

Jun. 15 2022, Published 1:35 p.m. ET

As most know, one of the only constants in the stock market is that it never stays the same for long. The market inevitably rises and dips, sometimes in small increments and sometimes with large swings upward or downward. Therefore, no one should be shocked that average 401(k) losses are high in 2022.

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With inflation rates having reached 40-year records this spring and the stock market experiencing volatility, many Americans with 401(k) retirement accounts have lost money. Fidelity Investments’ recent quarterly report indicated that retirement balances have decreased on average in the first quarter of 2022.

Why is my 401k losing money?

When you contribute to a 401(k), you invest a portion of your earnings into a tax-advantaged account. Since 401(k) plan funds are invested in the stock market, they naturally will gain and lose money according to the fluctuations in the overall market.

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When the stocks are in a bear market (meaning the value of stocks has dropped over 20 percent from their recent highs), 401(k) balances drop. If you have a 401(k) through your employer, it has most likely lost value due to the recent market decline.

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A 401(k) is a retirement investment vehicle, and it has likely lost money over recent months.

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The average 401(k) lost about 7 percent in Q1.

According to Fidelity Investments data, their average 401(k) balance dipped by about 7 percent from the fourth quarter of 2021 to the first quarter of 2022. The average 401(k) balance dropped from $130,700 to $121,700 in that period.

403(b) accounts experienced a similar decline, from $115,100 to $107,600 per account. Fidelity also shared data on IRA balances, which dropped on average from $135,600 to $127,100 from the fourth quarter of 2021 to the first quarter of 2022.

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Despite the decrease in overall retirement account balances, Fidelity reported that people continued saving. The total 401(k) savings rates reached a record 14 percent in the first quarter of the year.

Is your 401(k) going to recover?

As CBNC Select noted recently, it’s normal for your 401(k) to be down right now. However, your investments are likely diversified within the 401(k) and your risks are spread out. Investing in a 401(k) is a long-term endeavor, so it’s likely that your 401(k) will recover its value eventually.

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What you should do if your 401(k) is losing money.

For most investors, the best course of action when your 401(k) is losing money is to not change anything. That means you generally don’t want to pull investments out early and you don’t want to stop investing new money. This applies to younger workers who have a longer time horizon.

If you’re especially early in your career, this might even be a good time to increase your regular 401(k) contributions. Lowering 401(k) contributions out of fear during a downturn could backfire if you have plenty of time to wait out the market.

However, if you’re nearing retirement, you may want to begin moving part of your 401(k) balance into more stable investments. Fixed-income assets such as CDs and government bonds may be safer places to stash the first few years’ worth of funds.

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