My 401(k) Is Losing Money—What Now?

Get perspective and decide what to do

Stressed Caucasian businesswoman using cell phone

Jose Luis Pelaez Inc / Getty Images


Watching your 401(k) account balance drop can be disappointing and terrifying. You may feel anxious and upset about the decisions you’ve made, the state of the world, and your ability to reach your long-term goals.

Before you react, review the big picture to gain insight into what might be happening and if it’s something you need to act on, or not.

Key Takeaways

  • Over long periods of time, investors have historically experienced growth, as short-term losses are offset by larger long-term gains. 
  • It’s best to make changes to your portfolio only when your goals or circumstances change.
  • Knowing your risk tolerance and investing accordingly can help assuage fears during a bear market.
  • A diversified portfolio is a fundamental way to mitigate risk during a market decline.

Is This Normal?

Stocks Lose Money Every Year

Although the markets have generally risen over time, stocks lose money almost every year—at least temporarily. 

Since 1979, the U.S. stock market has fallen from its intra-year highs by about 14% (on average) every year. Still, the market ended up with positive returns in roughly 83% of those years. Temporary losses in the stock market are an unpleasant aspect of investing for growth, but a downturn doesn’t necessarily signal that your investment goals are shattered.

Bear Markets Have Always Ended (So Far)

Market losses of 20% or more, also known as bear markets, are a fact of life for investors. Since 1970 investors have suffered through nine of them. The average decline was 36%, and the average length of a bear market was about 9-10 months (some were more severe, and some were less severe; some were longer, and some were shorter).

You might take comfort in knowing that things have tended to recover in the past; it just took time. In the past five bear market recoveries, the S&P 500 rose by an average of 25% in the first three months of the bull market. After the bear markets ending in '82, '87, '02 and '09, the stock market returned to a new high in an average of 32 months. That doesn’t mean investors necessarily recovered all of their money within one year, but they recouped some losses early on their way to greater gains later.

Over long periods of time, investors have historically experienced growth. The past does not predict the future, but in the past, short-term losses have typically been offset by larger long-term gains. 

Should You Sell When Your 401(k) Loses Money?

If you sell your losing investments and switch to safer holdings, you may miss out on a recovery (if history repeats itself) and lock in your losses. Plus, you’ll need to decide if and when you want to get back in. That’s a difficult position to be in—you might not ever feel fully confident about investing, and by the time you sense the “all clear,” you may have missed a substantial recovery.

It’s best to make changes to your portfolio only when your goals or circumstances change. If you are currently invested in a well-diversified portfolio that you chose with long-term needs in mind, it’s often smart to ignore market volatility (unless your needs have changed). Of course, that’s easier said than done.


It’s impossible to know if you should sell now or try to ride out the market’s ups and downs. That's why it's usually best to make investment decisions based on your timeline and level of risk tolerance.

Tips for Long-Term Investors

Review Your Risk Level

Review your holdings to verify that you’re taking the right level of risk. Your risk tolerance has to do with how much loss you can stomach and how much time you have left until you retire. If you’re invested well outside your comfort zone, market losses can be harder to take. If retirement is only a few short years away, your portfolio doesn’t have as much time to recover.

A first step is to complete a risk-tolerance questionnaire, whether online or from a financial advisor. It may provide suggestions about investment strategies that might be appropriate for you. You don’t have to follow the suggestions to the letter, but going through the exercise can provide insight into your investing behavior and needs.


A middle-of-the-road (or “moderate”) risk taker might have roughly 60% of their portfolio in stocks and 40% in fixed-income investments. As stock holdings increase, you become more aggressive. With less stock exposure, you are more conservative.

Make Sure You’re Diversified

If you’re heavily invested in just one or two investment categories, you might experience more volatility than if you spread your money around (or “diversify”).

For example, if you’re only in mutual funds with large U.S.-based companies, you might benefit from having exposure to large and small companies, both within and outside of the U.S. Different types of bond holdings can also provide ballast (and potential returns). A robust mix of bond holdings might include U.S. and foreign government bonds, corporate bonds, and other fixed-income strategies.

Diversification is based on the following idea: During any given year, some investments lose more than others—and some types of investments might go up, offsetting your losses. During 2008, for example, investors in stocks lost over 30% (substantially more in some sectors). But U.S. fixed income holdings gained 5.24%. Then in 2013, those “safe” fixed income holdings lost roughly 2%, while investors in U.S. stocks gained over 30%. The point is, a diversified portfolio can weather downturns better than one that’s not.


If you need help building a diversified portfolio with an appropriate risk level, ask your 401(k) provider or a fee-only financial advisor for help. You don’t have to do all of this alone.

Examine Fees

If you’re invested in a money market fund or a fixed account and you’re still losing money, fees may be the culprit. 401(k) plans often charge fees to your account balance, which cover things like plan administration and recordkeeping. The question is whether those fees are reasonable. 

Unfortunately, as an employee, you have little control over the fee structure in your employer’s retirement plan. However, you may have some control over other fees you pay. If your plan offers them, you can choose passive investments, often known as index funds, over actively managed funds, which tend to have higher fees.

If you’re concerned about fees, raise the issue with your employer. Employers are required to be aware of fees and ensure that any costs you pay are reasonable.

Looking Ahead

Now that you know that market downturns are normal (and usually temporary), how should you respond? That largely depends on whether or not you can tolerate the discomfort of seeing losses in your account. If not, it’s a signal you may want to adjust the level of risk in your portfolio. In many cases, it’s beneficial to ride out these periods and wait for markets to recover.


“Don’t just stand there, do something!” In many emergencies, that’s sound advice. But when stock markets get wild, the opposite might be better: “Don’t just do something, stand there!”

Taking action may feel like a path to regaining a sense of control, but the markets are beyond anyone’s control. The best you can do is pick an investment mix tailored to your long-term goals and expect that these things will occasionally happen.

Frequently Asked Questions (FAQs)

What's the difference between a bear market and a recession?

A bear market and a recession may occur hand-in-hand, but they measure different things. A bear market refers to the prices of securities specifically, and a recession refers to the state of the economy as a whole, relying on larger indicators like GDP.

Should I change my 401(k) to prepare for a bear market?

Within your 401(k) plan, you probably have several ways to diversify. Asset allocation funds can handle most of the hard work for you. These vehicles invest in numerous different areas, and your task is typically just to choose one. The funds might even have easy-to-understand names like the “Conservative” or “Aggressive” fund. But it’s best to examine the underlying holdings to understand how each fund works.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Dimensional. "Recent Market Volatility."

  2. The Hartford. "10 Things You Should Know About Bear Markets."

  3. Edward Jones. "Investing Through Recessions and Recoveries: Lessons From History."

  4. Callan Institute. "The Callan Periodic Table of Investment Returns."

Related Articles