My 401(k) has dropped to about $200,000 and lost around 23% over the last few years. I’m trying to recover my losses, but my employer isn’t very supportive. Where can I get assistance? What should I consider? Is this situation normal?
Robert Johnson, a certified financial analyst and finance professor at Creighton University, notes that such significant negative returns are quite unusual. It’s probably a good idea to talk to a financial advisor—maybe someone you consult on occasion—to help with this situation. You can find qualified advisors at CFP Board, NAPFA, or even via a free tool designed to match you with fiduciary advisors.
“To experience returns this poor, you probably haven’t been managing your investments well. Typically, to end up with that result, you’d need to be heavily concentrated in one stock,” Johnson adds. He mentions that over the past couple of years, most asset classes have reported positive growth, with developed market government bonds being a slight exception, down just 3.6% this year.
Interestingly, Thomas Betros, a certified financial planner at D’Arcangelo Financial Advisors, points out he hasn’t witnessed any major asset class declining in value recently. The S&P 500, for example, has increased nearly 48% during that time. So, if the overall market has risen, what’s dragging your portfolio down? “You can’t rewind time. It’s crucial to keep your focus on future investments that you comprehend,” says Jay Zygmont, a certified financial planner and founder of Childfree Trust.
First, it’s important to reassess your investment strategy. Betros suggests that when the market has been performing well, a poor return is a warning sign. Changing your strategy might be necessary, but he cautions against taking an overly aggressive approach to recoup losses, as it could lead to greater risks if the market turns downward.
Johnson suggests drafting an investment policy statement, which can be vital. “Every investor should develop one. It’s like having a roadmap. You need to outline your investment goals, risk tolerance, and any specific needs like liquidity or taxation,” he says.
To mitigate risk in your retirement portfolio, considering bonds is often advisable, according to Betros. “When the stock market dips, bonds typically help cushion the losses,” he explains. This could encompass various types, like government or corporate bonds, inflation-protected options, and others.
If you’re unsure about managing this on your own, Stephen Connors from Connors Wealth Management recommends utilizing exchange-traded funds (ETFs). “ETFs invest in a broad array of stocks, rather than just one. This diversification usually helps, although there’s no guarantee of performance,” he states.
Finding the Right Financial Advisor
When seeking help, it’s crucial to work with a trustworthy financial advisor. Johnson emphasizes, “A key question to ask is whether they are a fiduciary. It’s important that they prioritize your interests. If not, consider other options.” Chartered Financial Analysts and Certified Financial Planners are often required to be fiduciaries.
Given your situation with a 401(k), it might be best to engage either an hourly or project-based advisor who can help address your specific concerns without the cost of continuous management. Rates for hourly advisors can range from $200 to $500, while project fees can run from $1,500 to $7,500, depending on the complexity. When interviewing potential advisors, be sure to ask them the right questions.
Consulting another financial professional beyond your current employer can also provide clarity on your losses and assist in future planning. “While it doesn’t guarantee improved outcomes, it may help you understand what went wrong and how you might prevent it moving forward,” Connors suggests.
