What to Do If Your 401(k) is Losing Money

Andrew Weber is a senior director of Planning Experience Integration for Northwestern Mutual.

Building a strong retirement nest egg doesn’t happen overnight. It’s usually a long game that takes patience and years of investing. And along the way, you’ll likely experience bouts of market volatility, which can push your 401(k) balance up and down.

A fluctuating account balance is completely normal, though dips can admittedly be a bit more concerning if you’re nearing retirement. While market swings come with the territory, there are ways to navigate downturns and position yourself for long-term growth—rather than selling your holdings at a loss and robbing yourself of potential future gains.

We’ll dig more into why these market swings happen and why your response (or lack thereof) is so important. We’ll also give you some things to try if your 401(k) is losing money.

Why is my 401(k) losing money?

A 401(k) is an employer-sponsored retirement account that allows you to make pre-tax and/or post-tax contributions. Your employer may even offer a match to help you supercharge your savings. The money you and your employer contribute to your 401(k) can then be invested, allowing you to take advantage of compound interest to grow your savings even more.

Most 401(k)s have a fund menu that may allow you to invest in:

1. Stocks
2. Bonds
3. Mutual funds
4. Index funds
5. Exchange-traded funds (ETFs)

At least a portion of your 401(k) is likely invested into a variety of different types of stocks , which is what can help it grow over time, hopefully faster than the rate of inflation. If the market dips you may see declines in value, lowering your 401(k) balance at certain points along your savings journey.

While it’s also possible to lose money from investments in bonds, they are typically considered to be a low-risk investment. That being said, different types of bonds can be more or less risky, just like different types of stocks.

What causes stock market fluctuations?

Every portfolio is subject to a variety of different types of investing risks that can cause stock market disruptions and volatility from time to time. One of those risks is market volatility, which can be caused by things like:

• Political developments, such as elections or regime changes that can lead to changing laws, regulations, tariffs and national investments affecting different sectors
• Economic factors like unemployment, inflation or other factors that might indicate that a country is in or entering a recession
• Industry-specific trends, such as supply chain issues or sudden constraints on the resources and commodities necessary to create a product

The common thread connecting these examples is uncertainty. Uncertainty about where a country, industry or market is heading often causes volatility as investors try to anticipate what’s coming while hedging against other possibilities. In the short term, this can cause downturns.

How long does it take the market to recover from a downturn?

It’s impossible to predict future market dips, but things can turn around relatively quickly—anywhere from a few days to a few weeks or months.

For example, at the start of the COVID-19 pandemic in March 2020, the S&P 500 quickly fell a whopping 34 percent—but the market recovered by August and went on to reach record highs shortly thereafter.

An even more recent example was this spring. The S&P 500 declined by approximately 19 percent from February 10 to April 8, 2025. Then, from April 8 to June 26, the index increased by 23 percent—essentially wiping away those earlier losses.

Though it can take longer or shorter for the market to correct, historically nearly half of all corrections or recessions break even in eight months or less.

What to do if your 401(k) is losing money

While it’s easy to think that you’re “losing money” when the value of your investments decline, the reality is that you haven’t actually lost any money. That’s because you still have the same investments, which can increase in value in the future. Just like you don’t actually make money investing unless you sell your assets for a profit (or earn dividends), the only way you lose money is if you sell your investments when they have lost value.

Don’t “panic sell” your investments

While it may be tempting to “cut your losses,” doing so means you could miss out on future returns. Throughout history the stock market has bounced back from short-term declines, and selling your investments could mean missing out on some of the market’s best days. This is why staying invested usually yields better results than trying to time the market. So next time the market takes a hit, remember that investing requires a long-term strategy.

If you’re looking to retire in the short term and you’re concerned about a market downturn, reach out to your financial advisor before taking action.

Figure out why your 401(k) is losing money

If you're losing money in your 401(k) and aren’t sure why, reach out to your advisor. Together, you can investigate what is responsible for the decline in your account value.

One possible culprit is that you’re not appropriately diversified. Diversification is about spreading out your risk and holding a mix of securities from different sectors and asset classes. If your 401(k)’s investments are diversified, gains in one part of your 401(k) can help offset losses in another.

Your advisor can look at what investments you have and—if needed—make recommendations to better diversify your portfolio going forward.

Diversify your retirement savings

Diversification should extend beyond your investment portfolio—it’s also about diversifying the types of accounts or financial vehicles you’re using to save for retirement, which can help you:

1. Save more for retirement: Just because you’ve maxed out your 401(k) contributions doesn’t mean you can’t also save in another account, like an IRA.
2. Manage market downturns: Having a guaranteed income source to tap during market downturns—like the cash value of a life insurance policy—can give your other assets time to recover value before you’re forced to sell at a loss¹.
3. Flexible tax treatment: By strategically investing in accounts that are taxed differently—like a traditional or Roth 401(k) or IRA—you have greater tax diversification and gain flexibility in how you make withdrawals during retirement, helping you manage your tax bill more efficiently.

Depending on your situation, your advisor could recommend strategies like opening a Roth account or traditional IRA, purchasing an annuity, leveraging cash value that’s accumulating in your whole life insurance policy¹ or adjusting your Social Security claiming strategy. The right mix of financial assets will really depend on you and what you’re hoping your retirement will look like.

Consider your retirement timeline and adjust your risk tolerance

Younger investors have more time to rebound from dips in their 401(k) and continue growing their nest eggs. If you’re on the home stretch to retirement (or already there), you might feel short-term market dips more than someone who’s decades away.

How you respond to a declining 401(k) balance will depend on where you are in your journey. If you’re further from retirement, your advisor may recommend you wait it out and give your money time to grow. On the other hand, if you’re nearing or in retirement, you should make sure that your portfolio has the right asset allocation for your needs. (Your advisor can help you do this at any time, too.)

How can I protect my retirement savings from market downturns?

No one can ever fully predict the beginning or end of a market downturn. Investing always comes with risk—and trying to time the market often backfires. But here are some strategies you might try to lessen the impact of market downturns:

Stick to your plan

Even during market downturns, sticking to your plan and staying diversified is generally seen as the best way to invest. It can be tempting to make moves as the market dips, but if you’re not retiring soon, it’s usually best to stay put. If you are nearing retirement, consult your advisor before making any moves. A good financial plan should be designed to weather unexpected turns, so chances are your advisor already has a good plan of action in mind.

Diversify

Most financial plans should include a mix of low- and high-risk investments, giving you diverse exposure to the market and keeping your portfolio balanced. Your advisor can help you select investments based on your age and risk tolerance, then adjust your approach as you get closer to retirement.

You may also want to include some investments that “auto-diversify” for you, like target-date funds or index funds and work in some low-risk, reliable investments like certificates of deposit (CDs) government bonds.

If your 401(k) is your only retirement savings option, consider working with your advisor to add in additional savings options. Doing so can help diversify your plan and allow you to take advantage of additional benefits, maximizing what you’ve saved.

Stay close with your financial advisor

Your advisor will help you keep your eye on the end goal—regardless of what happens in the markets. A good financial plan will be prepared to adapt to potential risks, so if you stick to it, you should still be able to reach your financial goals.

However, if you are feeling worried about your retirement savings, give your financial advisor a call. They can answer any questions you have and help you see the bigger picture—giving you peace of mind that the money you worked hard for will be there when you need it.

All investments carry some level of risk, including loss of principal invested. Neither diversification or other investment strategy can guarantee a profit or protect against loss.

¹Utilizing the accumulated value through policy loans, surrenders or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.