What to do when you get a Terrifying 401K statement

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I don’t look at my 401K statement very often. I only look once a year to check out my yearly performance and see if I need to do any re-allocations, which is generally a good rule to follow.

Well looking time came around, and it was terrifying! My 401K only gained about a thousand dollars over the course of the year. I’m not going to fully disclose how much money I put into my retirement account, but I will say that it was much, much more than a thousand bucks. Over ten times more.  So yeah, my 401K statement was terrifying this year.

Why was my 401K statement so bad?

Markets go up and markets go down. That’s normal. We all knew that 2018 was going to be a rough year, especially with the tumultuous political climate. Markets do not respond well to uncertainty.

The market didn’t exactly crash, but it didn’t perform well either. My overall performance for the year was -3%. It’s never fun to see negative returns.

What should you do when you a terrifying 401K statement?

Since most of the markets performed poorly in the last few months of 2018, I’m guessing that you also had a pretty terrifying 401K statement.  

Don’t Panic!

As I said above, markets go up and markets go down. You will have killer 401K statements some years where you see massive gains, and you will have terrifying 401K statements in other years, where you may even see losses. The main thing to remember is that investing is a long-haul game.

"A terrifying 401K statement"
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Why Bad Years are Actually Good

I know, it sounds counter-intuitive. But bad years for your 401K could be good years for your long-term wealth! If you still have over 5 years left in your investment horizon (which you should if your money isn’t in safer investments), bad years do actually help you build wealth.

Most 401K plans include funds that regularly re-invest your dividends. Unless there’s a huge recession or a company is about to go bust, dividend prices don’t change with stock prices. So, when the price of a stock goes down, you still get paid the same amount in dividends. And when you re-invest those dividends, you are actually buying that stock at the cheaper price. Therefore, you can buy more stock, and will make more money in dividends each time. I’d call that a win, wouldn’t you?

True, it hurts to see investment losses. Its emotionally draining and down right terrifying. But breathe. Remember that this is normal, and think about how much more money you will be making on the next upswing.

 

So what should you do?

In case it wasn’t clear above, the answer is nothing. If you have tons of time left before you are going to need that investment, do nothing. A big fat nothing. Ignore it. Keep investing and keep your eyes on the goal. It will go back up before you can use it.

What if you are closer to retirement?

If you are going to be withdrawing from your 401K in the next 3 to 5 years, you’re in a bit of a different situation. The best thing to do is to keep working if you can and keep investing. Try not to withdraw when the market is low. When the market goes back up, move most of the money that you will be relying on short term (5 years) to a safer investment (cash, bonds, etc.). That way you will be able to withstand the next few market downturns.  

A Terrifying 401K statement doesn’t have to be so terrifying

In reality, a terrifying 401K statement isn’t all that terrifying. Yeah, it sucks to see that you lost money this year. But as long as you stay the course, you will be fine over time.

How terrifying was your 401k statement this year? Let’s give each other some emotional support in the comments!

 

Interested in other posts on market crashes? I’ve got you covered! Check these out:

A Market Crash is Coming

How to Prepare for a Market Crash

What to do when the Market Crashes

 

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Author: melanie

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