Is My 401(k) Losing Money?

Key Takeaways

• Young workers have a lot of years to save for retirement. Market volatility is an opportunity to add to their portfolios at depressed prices.
• Review your portfolio's asset allocation to take back a sense of control.

Carole Hodorowicz: With all the market volatility, rising interest rates and now talks of a recession, I feel like the sky is falling.

Katherine Lynch: What's falling is my 401(k). What's going to happen to all my savings?

Hodorowicz: We need to remember this won't last forever, but it wouldn't hurt to get a few tips while we ride this out. I think I know just who we need to call: Christine Benz.

Lynch: Christine Benz. Just the person we need. Is there anything I can do when my 401(k) is going down?

Christine Benz: Well, at your life stage, it's so important to remember your time horizon, and if you're saving for retirement, you have a lot of years to continue to add to your portfolio before you need to begin drawing upon your portfolio in retirement. So, think of periods of market volatility as your friend. They're really the opportunity to add to your portfolio at depressed prices.

Streamline Your Portfolio

Lynch: So, should we just ignore the noise and keep our hands off the 401(k) and let this pass?

Benz: Well, generally speaking, yes. But there are a few things you can do to kind of take back a sense of control. One of the first things you can do is revisit your savings rate and see if you can't find some more money in your budget to invest each month. Also, take a look at your portfolio's asset allocation. If you're saving for retirement, you have a really long time horizon, but you might have shorter-term goals where you'd want to have more conservative investments set aside. And then, finally, take a look at your portfolio. Make sure that it's just as streamlined as it can possibly be.

Hodorowicz: How can I streamline?

Benz: Well, there are a couple of things you can think about. One is if you have old IRAs or 401(k)s, you can consolidate them into a single IRA. Also take a look at the expense ratios on your holdings. If you have mutual funds or exchange-traded funds in your portfolio, see if you can't get those costs down, because remember, you get what you don't pay for.

Build an Emergency Fund

Hodorowicz: Is there anything you suggest we do outside of our portfolios?

Benz: Well, you can think about a few key things. One is to make sure you have an emergency fund and potentially add to it if you can. That way if you incur unexpected expenses like a healthcare bill or a vet bill, you'll have the funds separate from your retirement accounts to cover them. It's also helpful to think through whether you have any short- and intermediate-term goals in mind. And for those investment goals, you'd want to have a more conservatively positioned portfolio that's separate from your retirement portfolio. And above all, with your retirement portfolio, tune out the noise, because it's just that—noise.

Hodorowicz: Thanks, Christine.

Lynch: Thanks, Christine.

Watch Carole Hodorowicz and Katherine Lynch discuss What Is a Recession? and Why Are Interest Rates Rising? from our Short Answer series.