What to Do if Your 401(k) Is Losing Money

Why Is My 401(k) Losing Money?

A 401(k) plan is an employer-sponsored retirement account that invests your contributions in the financial markets, which means its value will rise and fall over time.

Several factors can cause your balance to decline, including the following:

• Market volatility: Short-term swings are a normal part of investing. Stocks, bonds and other assets go up and down in value, sometimes sharply, in response to investor sentiment.
• Broader economic conditions: Recessions, inflation and rising interest rates can all weigh on stock returns across the board.
• Lack of diversification: If your portfolio is heavily concentrated in one stock, sector or asset class, a downturn in that area can drag down your entire balance.

Learn more: How Much to Save for Retirement by Age

What to Do if Your 401(k) Is Losing Money

Losing money in your 401(k) can be unsettling, but a measured response is almost always better than a hasty one. Here are five steps to consider.

1. Don't Panic

Investing for retirement is a long-term venture. The stock market has produced an average annual return of about 10% since 1926, even after accounting for crashes, recessions and corrections along the way.

Short-term losses are a normal part of the cycle. Rash decisions, like selling during a downturn, can lock in losses and make it harder for your portfolio to recover. Even if retirement is only a few years away, emotional reactions to market dips often do more harm than good.

2. Investigate the Reasons

Take a step back and try to understand what's driving the decline. Review your portfolio's holdings, then read investment news to get a broader picture of what's happening in the markets.

If the drop appears to be tied to short-term volatility, patience may be all you need. If a more prolonged downturn seems likely—particularly if you're within a few years of retirement—you may want to consider adjusting your strategy.

When evaluating the situation, avoid relying on a single source. The stock market is complex, and it's easy to find experts predicting doom at the first sign of trouble. Read widely and look for data-driven analysis to get a better idea of what's going on and whether you need to be concerned.

Learn more: How to Avoid Emotional Investing

3. Evaluate Your Risk Tolerance

Risk tolerance is the level of risk you're comfortable taking with your investment portfolio.

Your ideal risk level depends largely on your time horizon, which is how many years until you plan to start withdrawing funds. Younger investors with decades until retirement can typically afford to hold more stocks, which carry higher risk but greater long-term return potential.

In contrast, investors nearing retirement may want to shift toward more conservative holdings, such as bonds, to protect the wealth they've already built.

If your portfolio's risk level no longer matches your timeline or comfort level, a reallocation may be worth considering.

4. Look for Opportunities to Diversify

Diversifying your portfolio is one of the most effective ways to reduce unnecessary risk. The idea is to spread your investments across different asset classes, sectors and geographies so that a downturn in one area doesn't devastate your entire balance.

Here are a few ways to diversify your investments within a 401(k):

• Invest in mutual funds or exchange-traded funds (ETFs) that hold stocks across multiple industries.
• Spread investments across different asset classes such as stocks, bonds and real estate.
• Limit your exposure to any single stock, including your employer's.

Many 401(k) plans also offer target-date funds, which automatically adjust your asset mix as you get closer to retirement. These can be a great choice for people who want to diversify without needing to do a lot of research on their own.

5. Consider Financial Advising

A financial advisor can help you evaluate your portfolio and make adjustments based on your personal goals and timeline. This can be especially valuable as your balance grows or as you approach retirement.

Financial advisors vary in their focus. Some specialize in investment management, while others offer broader financial planning services that cover taxes, estate planning and more. Look for a fee-only fiduciary advisor, who is legally required to act in your best interest.

Other Tips for Maximizing 401(k) Growth

Beyond managing losses, there are proactive steps you can take to strengthen your retirement savings over time:

• Take full advantage of your employer match. Many employers match a percentage of your contributions. For example, if you put 5% of your salary into your 401(k) plan, and your employer matches it dollar for dollar, that's an immediate 100% return (assuming no vesting schedule). If you're not contributing enough to capture the full match, you're leaving part of your compensation on the table.
• Increase your contributions over time. Even small annual increases can make a meaningful difference thanks to compound growth. The IRS has set the 2026 401(k) contribution limit at $24,500, or $32,500 if you're 50 or older.
• Avoid loans and early withdrawals. Tapping your 401(k) early typically triggers income taxes plus a 10% penalty if you're under age 59½. It also removes money from the market, reducing your long-term growth potential.
• Review your portfolio regularly. Markets shift and so do your goals. Checking your allocations once or twice a year—and rebalancing if needed—helps keep your strategy on track.
• Keep an eye on fees. Review the expense ratios on your plan's investment options. Lower-cost index funds often outperform actively managed funds over time, partly because they charge less.

Keep a Long-Term Perspective

A dip in your 401(k) balance is stressful, but it doesn't have to derail your retirement plans. The most important steps are to stay calm, understand what's driving the decline and make sure your portfolio reflects your actual risk tolerance and timeline.

If you're unsure where to start, working with a financial advisor can give you a clearer picture. You should also stay on top of your overall financial health, including your credit. You can check your credit scores for free through Experian and monitor it over time at no cost.