Average 401(k) balances are down more than 20% this year.  Here’s what the experts say you should do to

Average 401(k) balances are down more than 20% this year. Here’s what the experts say you should do to

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Buzz Update Average 401(k) balances are down more than 20% this year. Here’s what the experts say you should do to

Saving for retirement is one of the most important financial tasks, but the transition from a zero balance to a comfortable savings you can live off of later isn’t always linear. According to latest data from Fidelity, the average 401(k) balance fell for the third straight quarter and is now down nearly 23% from a year ago at $97,200. Some of the main culprits? A rising inflation rate and massive stock market fluctuations.

“Many 401(k) account balances are shrinking because major asset classes (stocks and bonds) have seen double-digit declines this year,” says Herman (Tommy) Thompson, Jr., certified financial planner at Innovative. FinancialGroup. “Furthermore, economic difficulties, including rising inflation and job cuts, have forced some participants to take out loans and distributions at the worst possible time…when the markets are down.”

The Do’s and Don’ts of Investing in a Volatile Market

So how do you manage fluctuations that could affect your retirement savings balance? Here’s what the experts suggest:

  1. Stay steady and keep saving. Yes, even when things are bumpy, you should continue to save for your retirement, and most savers take note. According to Fidelity, the average 401(k) contribution rate, including employer and employee contributions, held steady at 13.9%. In fact, the majority of workers (86%) kept their savings account contributions unchanged and 7.8% even increased their contribution rate.

    Invest in your 401(k) is a form of purchase average, which is an investment strategy that requires you to invest the same amount at regular intervals, no matter what. One of the main benefits: this approach takes the emotion out of investing and ensures that you don’t make sudden moves that could end up costing you even more. “It’s best not to panic in the face of short-term weakness: it gives the long-term investor the opportunity to invest future contributions at lower prices,” says Karl Farmer, CFA, Vice President and Manager portfolio at Rockland Trust. Another advantage of staying the course: employer contributions By continuing to invest regularly over time, you are guaranteed to benefit from employer contributions and grow your balance.

  1. Do not borrow money from your 401(k). If you can help it, you should try to avoid borrowing from your 401(k). While only 2.4% of savers initiated a new loan in the third quarter, major changes in your balance or changes in your financial situation in a difficult economic climate could prompt you to dip into your 401(k) funds. Most experts would agree that this is not the wisest long-term plan. Borrowing from your future self comes with its own set of risks, like taxes, penalties, high interest rates, and loss of potential. growth you would have seen if you had left your money alone.
  2. Avoid making impulsive changes to your asset mix. You may want to wait before making major changes to the mix of assets you invest in. “Retirement savings, like 401(k) accounts, need to be managed with an eye to the long term,” says Thompson. “Reducing risk after your portfolio has already suffered a double-digit decline usually results in insufficient risk in the portfolio when markets recover.”

The take-out sale

If your investments are making you feel uncomfortable, take a break. Fixating on the daily short-term fluctuations of the market could cause you to act impulsively and make a move that you will later regret. Continue to save for your retirement and periodically check your portfolio to track your progress.

“At least annually or in volatile markets, investors should review their allocations to ensure they are still in line with their objectives,” says Farmer. “For example, many investors in the spring of 2020 had the opportunity to reduce exposure to bond funds and re-enter weakened equity allocations. Rebalancing should be done at least once a year.

This story was originally featured on Fortune.com

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