My 401k has lost a lot of money – how about yours?

Is your 401k losing money?

After reading a few articles about people talking about their diminishing 401(k)s, I decided to check and see just how well mine has been holding up against the crisis. I haven’t checked it in months, because I am in it for the long haul and I know that over the last 100 years we have had about 25 recessions and 25 recoveries. I know, some of the talking heads are saying that this time it is different, but from the few I have lived through, they seem to say that every time. John brought up a good point that we should be taking advice from Warren Buffett (who has been buying lately since things are so cheap) because he obviously has been successful, rather than people being guided by fear.

What to do when your 401k loses a lot of money

Anyway, back to my 401k. It is down. A lot. 37% this year to be exact, and just like you I have the strong temptation to pull it out and hold on to what is left of it, BUT I am not going to. Historically, when things have gotten really bad, a couple months or years later they come back in full force.

No one really knows for sure what is going to happen, but I think that even statistically speaking, the chances are good that we as an economy are going to come out of this recession/depression just like the others.

What if I want to retire soon?

Hopefully, if you have had your retirement funds invested wisely, you shouldn’t have too much invested in stocks as you near retirement. I know bonds haven’t been doing very well either, but they haven’t been draining 401ks the way stocks have lately.

If I were planning on retiring in a couple of years and had lost as much money as I have in my 401k, I would probably plan on working a bit longer, or figure out a way to live off a little bit less. I would just hate to pull my money out on the downturn of the market.

As my wife and I have been working on getting out of debt, we have learned a lot about living off of less. If I knew I had to retire in two years and would be stuck with a lot less in my 401k that I hoped, I would…

  • Focus my time and energy on paying off debt. Credit cards, car loans, any other loans, and then the mortgage. Knocking out each one of these debts just reduces the amount you need to survive. This of course is why being debt-free is so fun – you can pay your bills each month with a minimum wage salary.
  • Pray about whether or not to move your funds to cash. I truly believe that the market is going to come back, but I have no idea how far (if any) it will have recovered in a couple years.
  • Consider a second job to pay off debt to minimize your expenses. There are tons of freelance jobs you can do from home.

What I am doing with my 37% loss in my 401k

I am trusting the advice and methods of a few wise investors by sticking it out. I am fighting the urge to bail out. I don’t know for sure what will happen, but I am using my best judgement and doing that.

But the bottom line is regardless of what happens to our money in the bank, our 401k, or the economy we still have the promise that God is going to take care of us…

Matthew 6:25-27

“For this reason I say to you, do not be worried about your life, as to what you will eat or what you will drink; nor for your body, as to what you will put on. Is not life more than food, and the body more than clothing? “Look at the birds of the air, that they do not sow, nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not worth much more than they? “And who of you by being worried can add a single hour to his life?

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  1. MInTheGap

    Technically, you haven’t lost any money– the numbers on your 401k aren’t money, but a guess at what the paper you hold would be worth if you sold it today. Like most investments, it’s all about what someone will pay for what you have at any given point in time.

    That being said, you’re right– we should hold our savings put and wait for the storm to blow over. Investing more? Now there’s something that’s definitely debatable.

  2. bob

    You are right – it is just on paper, but either way, no one really likes to see their 401k values drop like they have… Or at least I would rather see the numbers increasing 😉

  3. Jay Peroni

    Hasty, speculative decisions aren’t advisable in any market. While I am not able to predict the future, I am able to look back carefully at the history of Wall Street … and judging by that history, I expect the market is likely to rebound as it has so often in the past.

    The market has certainly seen its share of turbulence through the years, and it often discovers its own remedy. If you were around for Black Monday in 1987, you probably recall the widespread panic that followed. But, you may also recall that in less than two years the market had sprung back, fully regaining the value it had lost by September of 1989.

    Do you remember where the Dow was in 1982? It was in the high 700s. By the start of 2000, it had grown more than 1,500% to sit well above 11,000. Yes today we’re around 9,000 but still up considerably over a 26 year period. Any investor should retain long-term faith in the stock market. If you are a short-term investor, stocks are not the place for you.

    Fluctuations and corrections happen, but the key is to stay invested through the turbulence. Human nature often leads us to be slightly pessimistic, and when that happens, your instinct may be to go into self-preservation mode. But pray and fully consider your decisions before you act. Will they actually help you to grow or preserve wealth? Or could they someday work against you?

    The markets are capable of amazing rebounds, and amazing gains. Look at the 1,000 point swing on Friday. The market is being dominated by fear right now causing people to overreact. Fearful decisions tend to be poor decisions.

    I tend to encourage long-term investment strategies in order to help my clients achieve their goals. When I say “long-term” I don’t mean just a few months, I mean several years. So, if the market corrects itself within the next year or so, those who make hasty decisions to sell now may not fare as well as those with patience.

    After all, more often than not it tends to be the long-term investor who sees the greatest accumulation of wealth in the long run. History has shown that timing the market is not the recipe for growth. Instead, it is the time you spend in the market.

    Great advice Bob! Stay the course.

    Second-guessing your financial plan now might not be advisable. And while I wholly support keeping an eye on the market, it’s important to fully understand the news and information before acting on it.

    Jay Peroni, CFP
    Author of The Faith-Based Millionaire

  4. bob

    Thanks Jay,
    I feel good when a CFP is in agreement with me! 😉

  5. GHolmes

    I’m staying the course seeing Im still young. Dollar cost averaging, hoping that by investing monthly (over time)will smooth the highs and lows out. My timing is very lousy. Im like you Bob, that it does feel like a loss, especially come month end when I compute our net worth for the month.

  6. Manarin

    So what if your 401k has lost you money – it means you are now buying more shares (i.e – your future retirement income) because of cheaper prices.

    Remain fully invested. Awhile back a group of researchers from Dimensional Fund Advisors reviewed the performance of the S&P 500 from January 1970 to December 2006. The annualized return for that period was 11.1%.

    But here is where things get interesting.

    When the researchers removed the 25 best performing days of the market over that 36 year period (less than one day per year), that 11.1% return dropped to 7.6%. A HUGE difference!

    So what does one learn from all this?

    First, tell your friends and family to quit making short-term changes to their investment strategy based on their emotions. They are foolish if they do. Woe onto anyone that thinks otherwise.

  7. david

    Why do people lose so much in their 401K’s? I moved 100% of mine out of stocks and into garanteed interest on May 6th of this year and haven’t lost any money. In fact I get a nice interest payment on the first of the month. Why do people leave their money exposed to disaster and always says things like I read here. It’s not real money or it’s only paper and your buying shares cheap… Look it isn’t paper it is money. You payed for the funds or stocks with hard earned money in the first place. Any gains you may realize largely just makes up for inflation. If you value the DOW in anything other than dollars the truth is it has been going down for several years prior to this meltdown. I suggest agile investing and not being greedy. A paultry 4% in an interest fund is better than 40% losses. There is the possibility that this is the end of the US markets as we have known them since $8T has vanished. Is it possible the entire thing was nothing more than a pumped up pyamid? What is Google really worth anyway? What is Apple worth? They babble about earnings and growth and market share but hey we have a huge portion of the population about to enter the retirement years and they will start pulling out what is left of their 401K’s and they won’t be buying a new SUV every year. We could be going back to the days when we cooked for ourselves and sewed buttons on shirts and changed our own oil. I’m very skeptical that this will recover anytime soon. Best of luck in your investing and future decisions.

  8. Jay Peroni

    America is founded on capitalism. When we all give up on America and give in to socialism, it will be the end of the America we know and the fall of a great nation. Stocks are designed for the long-run. If you’re not in it for the long-run, you shouldn’t be in stocks. If you are, owning businesses (your own or someone else’s) is one of the surest paths to wealth. Name me one person on the fortune 100 list that became a billionair einvesting in a money market? Taking all your money out of stocks and into cash worked for you THIS time, but less than 1% of the population can accurately time the market. If you faith is in God and not in money, you understand that everything is His (including money) so when the markets take a hit, it’s part of His plan. He will provide for our needs. I still recommend that you create a long-term plan based on facts not trying to time or predict the markets…after all you control what you control (your giving,saving, spending, debt levels, and investment choices) and the stock market is something out of our control. My faithi s in God and things will come back. I believe in God! I believe in America!

    Jay Peroni, CFP
    Author of The Faith-Based Millionaire

  9. david

    We could be looking at the DOW wilting down to 5000-6000 then we could be looking at 10+ years just to get back to where it was but inflation will offset gains in the markets so there is a real possibility it will never ever get back to where it was in value.

    You can move cyclically in and out of stocks and mutual funds if you do your homework. No I don’t believe in daytrading a 401k but the “long haul” has been preached so much to investors they fear making any kind of move and are surprised at a time like this to see their retirement fund down 40%.

    I’m a Christian but I don’t believe a lot of the things the wealth and properity folks teach. I don’t believe God plays a role in the general chaos that man creates. I don’t believe he has a hand in the market going up or down nor does he have a hand in what football team makes it to the Super Bowl. If he did he would be violating the free will he designed into mankind.

    I do believe God can speak to his children and forwarn them about coming calamities and economic downturns. He can tell us it is time to put it under the mattress so to speak but we have to spend time in prayer and listen to him.

    I’ll go back in eventually but I will need to see some positives in the financial sector then some uptics in technology otherwise garanteed interest is fine with me.

  10. Dave

    Consider buying silver bullion as a hedge against bear markets. I see a lot of people neglect the precious metals market because it’s probably just misunderstood or because not too many people know about it.

    here’s some sites that might help you get started…

  11. Terry Wasson

    The ” Stay the Course ” advice has hurt many people. I lost $150.000 by staying in. This is
    not your typical downturn and there is a real chance to lose everything.
    I am 59 years old and there is very little chance I will recover even a small fraction of what I lost.
    I have ruined my future by “Staying the Course”
    and riding out the storm.

  12. bob

    If I were 59 I think I would agree with you that it might not be worth riding it out. Having probably 30+ years til retirement myself, I don’t really have any other options than to ride it out. My alternative is to pull out the few remaining dollars and throw it under my mattress only to watch in get eaten away by inflation.
    Personally I still think we are going to see a nice recovery from this current recession that will offset the loses that people have had, but I have no idea how long it will take.

  13. brother 3

    I also lose a lot of money in my 401k,I agree that as other person with similar situation have no choice but stay in hopefully will recover some lose before retire,but we should learn a lesion why don’t watch our money like david when sense the crise is comeing get out from stock and wait price is right and put back then will make big gain.I blam mysel not to aware enough.

  14. just todd

    Being down that much, I don’t think you have any choice but to “stay the course.” I might consider rebalancing, depending on your long and short-term goals.

    Regardless of the amount one happens to be down, I think staying the course is the best action.

    The biggest concern I have are all the similarities to 1929, and the Great Depression that followed. Remember, it took the market almost 15 YEARS to recover.

    “Stay the Course,” but “Make Ready for Rough Weather.” 😉

  15. GOLDIE

    i had about 16k on my 401k from my previous job. when i left the job, i have not put any money on it. it was accumulating the past 5years and now when i check my statement, it’s down to zero balance. what does it really mean? have i lost the whole amount or am i still with the game? is there hope that the money i had in that account will recover? i really don’t know what zero balance means. please help explain. thanks

  16. Larry Weber

    Like Jay, I am a student of stock market history including past manias, panics, depressions and outright deception in the market (25 years experience). My conclusion about the current environment is very different from Jay’s. This crash is different than any other in history because of the extreme leverage and outright deception in the financial system. There is an estimated 500 trillion in derivatives that can explode at any time. Warren Buffet calls these “investments” weapons of financial mass destruction. In addition, private equity firms have what are called covenant lite loans that are similiar to sub prime funding. These type of loans have not exploded yet. If they do, we will have more financial heartache. Moreover, there are thousands of adjustable rate mortgages/interest only mortgages due around 2011 that will be very hard for most home owners to refinance so its likely that more defaults are on the way. Buy and hold is not always the best strategy like Jay mentioned. In “normal times”, you can buy and hold some simple index funds and with proper allocation you’ll probably beat 95 of all “professional” money managers over the long term. However, there are times when an allocation to the cash position is smart and the best investment strategy. We reallocated over 90 percent of our portfolio to cash prior to the crash because of potential issues with sub prime issues, excessive debt in the system and funny accounting practices that the SEC and other oversight organizations don’t have the power to change. The clues to these type of impending financial issues in our system are in state banking regulator reports and other investment oversight documents. A simple allocation to cash prior to 2008 would have saved billions in personal and public pension dollars. Most institutional investors and planners got it wrong and I don’t believe tradtional buy and hold is the answer in certain extraordinary times. Every so often there are events like this one in history that have clear signs of impending danger i.e., excessive debt, over valuation of the market, accounting deception, derivative leverage etc. that makes buy and hold the very worst strategy. The problem is that most investment professionals get complacent and are not trained to see the exceptions on the horizon. Buy and hold is not the Holy Grail that it is made out to be. There are exceptions to this strategy. Ultimately our faith as Christians is in Jesus Christ not the buy and hold philosophy.


  17. Jim Tuttle

    As Christians, we are to measure all things by God’s Word.

    God despises uneven weights and measures. Our fiat money system, like all other fiat systems, is nothing if it is not a system BASED ON “uneven weights and measures”. I suggest you check out the video “Money Creation” by Chris Martenson. He lays it out painfully well.

    We have in the Old Testament more warnings against fraudulent economic dealings than I can possibly quote. The ONLY outcome possible of using a fiat system is eventual collapse. Only the fact that God is slow to anger makes this inevitable collapse slightly obscured.

    Read the Word, and plan accordingly.

  18. Josh

    I think it’s funny that people see losses and gains as a positive thing, without diving into it.

    If you have 100,000 dollars and it loses 35 percent, then gains 35 percent, most people will say they broke even.

    But it’s not true.

    100,000 – 35% (35,000) = 65,000
    65,000 + 35% (22,750) = 87,750

    So you have to have a much bigger return on the upside to make up for the downside. And it goes both ways.

    This is why markets can have such a negative impact and people don’t even realize it. Plus, I don’t understand why you would want to put taxes off for the future but my guess is the are going to go up. I would rather pay them now personally.

  19. bill

    i think 401s would be unnesessary if the government would cease the printing of money,,inflation would be a strange and unfamiliar word and the average working american could save up their money in a good ol savings account that gains 5 percent intersest..the stock market is to darn risky,,,unstable and unprdictable,,,gold,silver,platinum,real estate,things of that nature are almost gauranteed to last in true value,,invest in these stocks and get the gains your loooking for,,,,feed the children,,,breakthrough ministries,,christian childrens fund,,

  20. jay

    401k investing in mutual funds is a lose lose situation. If your stock portfolio loses 40% you need the market to go up 80% just to make back that what you lost. How long will that take? I dont know! How much will you make back? I dont know! What I do know is that its hard to make back what you lost!

    As an investor your job is to make money and preserve gains. Not lose money! With 401k’s you can move your money freely but not when you may need to.

    I say look at the history of the market and all the crashes. There must be a patter or a set % gain the market reaches or plateaus at after a recovery. That I think is an exit point and you just wait for the next crash and take steady gains until then.

    You can make hundreds of percent gains after the crash………….works in stocks! should work in mutual funds!

  21. Mohammed Shahnewaz Sunny

    Pl keep keep posting your heart breaking and sad story about your financial life. There is a millions of innocent people in this world who can learn something from your story, and take a better step to have a better tommorow!!

    may god bless every one of you