3 Things to Remember About Your Shrinking 401(k)

Last year was a bad year for 401(k) investors. (And of course practically every other investor.) If it makes you feel better, Warren Buffett lost billions of dollars. When you’re not CEO of Berkshire Hathaway, though, it feels really bad to see your balance plummet — even if you are not alone.

But there is good news, especially if you’re in your 20s, 30s or even 40s. 

You’ve got decades to make this up, and chances are excellent that your investments will recover.

Here are three things to know about stock market corrections (the nicer word for downturn, which is itself a nicer word for “the stock market is garbage.”).

1. This too shall pass

Downturns are a fact of life. “They are a natural part of the market cycle, and are actually considered necessary for the stock market's long-term health and growth,” says Megan Slatter, an advisor at the advisory Crewe in Salt Lake City.

Remember 2007-08? The markets tanked, and then by March 2009 stocks were gearing up for the longest bull market in history. You might not remember the 2000 dot․com bubble, but we recovered from that, too, and reached new highs, Slatter points out.

2. Keep calm and carry on

Fear, euphoria and an overabundance of confidence all contribute to volatility in the stock market, Slatter says. Avoid panic selling.

“Investors who sold their investments during the market decline in March 2020 and remained in cash would have missed out on the subsequent market recovery. Investors who remained invested in the market during this same time would have experienced a temporary loss in their investment value,” Slatter says.

3. Time is on your side

Slatter says it’s understandable for younger investors, especially if they’re new to investing, to feel like their money is just disappearing after investing in the stock market.

Remember the magic of compounding, which Slatter calls one of the most powerful concepts in finance. “It means your money is working for you as the earnings generated by an investor’s original investment are reinvested to generate even more earnings,” she says. “The longer the time, the greater the growth in the investment.”

For more on what happened to workplace retirement accounts last year, read our reporter Adam Hardy’s story.

— Jill Cornfield, deputy editor

P.S. If you got this newsletter from a friend, sign up here for email delivery to make sure you don't miss the next issue.

7 Things you might not know about IRAs

Did you know that a nonworking spouse can open an IRA? Not only that, they can also contribute as much as the wage earner in the family. This is just one of the many overlooked facts about IRAs. If you’re thinking about funding your retirement, an IRA might be on your mind. Keep reading to find out six more  must-knows, including the advantages of turning 50, how to contribute if you’re a freelancer or side-gigger, and opening Roth IRAs for children.

LEARN THE HIDDEN IRA ADVANTAGES

• Women earn less than men, and it’s contributing to a growing gender gap in 401(k) contributions.
• Higher earners who want to save more — for a total of $66,000 — in their 401(k)s may be eligible for after-tax plan contributions.
• Want to retire by 40? Check out how-tos from people in the FIRE movement — Financial Independence, Retire Early — who actually did it.

This newsletter is free because Money earns a commission when you click or make purchases from the links in this email and on our site. We also receive compensation for some of the products and services featured in this message. Offers may be subject to change without notice. Learn more about how we make money.

Privacy Policy • Advertise With Us • We're Hiring!

To stop receiving these emails, unsubscribe or manage your email preferences.

Copyright ©2023 Money Group, LLC. All rights reserved.

Metro Office Park Calle 1, Building 7 Suite 204, Guaynabo, Puerto Rico 00968, USA