What to do When Your Retirement Account Values are Dropping
No one likes to see their accounts losing value, but honestly, it’s a normal part of investing. You have to take the gains with the losses because that’s just part of the “game.” But what if your retirement accounts values are dropping and you’re beginning to feel a little nervous about it? Should you do something to try to minimize your losses? Or just wait it out and see, hoping for the best?
Although no one can tell you exactly what you should do, there are some things to consider.
You can start by asking yourself some questions like these:
- Have your goals changed for your money?
Maybe you started out investing for retirement, but things have changed and you need access to cash for a large purchase or other financial issues. If your financial goals have changed, and the market is volatile, it’s totally okay to rework your portfolio to match your new circumstances.
- Are you still okay with the level of risk involved with your current investments?
If your retirement accounts values are dropping, it’s natural to feel a little concerned about it, but be sure not to make any decisions from an emotional perspective rather than from a strategic standpoint. If you feel the risk of the investment is no longer worth it, then a financial advisor who is familiar with the fluctuations of the market can give you an objective viewpoint from which to make your decisions.
- Are you adequately diversified?
Diversification can be a strategic move to help preserve your assets, so be sure to regularly assess how diversified your portfolio is based on your goals. Consider the risk involved with each investment, and when it makes sense, make the changes needed to set yourself up for the best financial outcome you can. Does this mean that you’ll never see a loss? Absolutely not, but diversifying your investments sure can help minimize it for you. Remember, using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.
5 THINGS TO DO WHEN YOUR RETIREMENT ACCOUNT DROPS
After you’ve asked yourself these questions, you’ll want to consider which actions to take. So here are some options when your retirement accounts values are dropping:
- Do nothing.
I know, this isn’t exactly what you wanted to hear, but it is an option. Most financial planners will tell you this, too, because losing and gaining is just a normal part of the investment process. It’s usually best to just stick to the plan that has been set up for you by your advisor and continue contributing to your accounts. This strategy, called Dollar-Cost Averaging, is when investors continue contributing to their accounts, no matter what is happening in the market. Believe it or not, this can actually lessen the risks compared to trying to “time” or “play” the market. Also, dollar cost averaging does not assure a profit and does not protect against a loss in declining markets. This strategy involves continuous investing; you should consider your financial ability to continue purchases no matter how prices fluctuate.
So don’t panic, stay the course, and trust the process.
You or your financial manager should be checking in on your investments regularly, but if this isn’t happening, now that you’re experiencing some losses, it may be a good time to do so. After all, you may want to change your investment strategy because your age, your goals, or your funds’ values have changed.
Evaluate how much of your portfolio is tied to stocks. The key is to find a balance; you want to invest in stocks (which can set you up long term) but not so much that your portfolio takes a big hit if the market experiences a downturn.
It never hurts to reevaluate your investments, and a fiduciary financial planner can partner with you to make sure that you’re making wise decisions, not impulsive ones. He or she can help you reallocate the investments you have or consider completely new ones.
- Increase contributions.
Crazy, right? Not entirely.
If you wait until things improve in the market, then prices will rise and it will be more costly to buy the investments you want.
It can sometimes make more sense to invest now when the prices of assets are lower. Remember, if you’re saving for your retirement that is decades down the road, you’re investing for the long haul, not just for today.
- Decrease contributions.
Although it’s not a great idea to stop making contributions to your retirement accounts because the market is struggling and your accounts are losing, there can be circumstances in which you may want to postpone or decrease your deposits. For example, if you’re struggling just to meet your basic living expenses, then don’t feel bad about taking a break from contributing to your 401(k) until you get back on your feet. You certainly don’t want to resort to using credit cards to live on. Instead, reassign the money you were contributing to your retirement account for a period of time to pay your immediate expenses, and then start your contributions again when you can. But keep in mind, halting your retirement contributions due to a falling market isn’t the best strategy.
- Reduce spending / Increase earning.
If you’re already in retirement and making regular withdrawals from your accounts when you notice them dropping, consider adjusting your retirement budget, decreasing spending where you can, and even picking up part-time work. This will enable you to withdraw less money from your retirement accounts.
If you’re not yet retired, consider postponing retirement a bit to give your retirement accounts a chance to recover before you start withdrawing. This could make a huge difference in the amount that you have in your account before you begin receiving payments.
STICK WITH IT WHEN YOUR RETIREMENT ACCOUNT VALUES DROP
Here’s the bottom line: play it smart in a volatile market, and don’t make hasty decisions based on emotion.
It’s not fun to watch your retirement accounts values drop, but if you pull your investments or discontinue making deposits every time the market drops, your losses will be set and you might not collect on future profits. Patience will ultimately pay off; however, if you aren’t sure what you should do, an experienced financial advisor can help you think through your options so you can make the right decision for your situation.
All investments involve varying levels and types of risks. These risks can be associated with the specific investment, or with the marketplace as a whole. Loss of principal is possible.