Don't Make These 401(k) Mistakes When Stocks Are Falling

are taking a toll on their 401(k) balances. 

Investors now see inflation,at its highest level in 40 years, as the main obstacle to a comfortable retirement. and Charles Schwab in a new survey of 401(k) plan members. Rising costs of living have outpaced stock market volatility as the main hurdle to retirement, the survey found. 

Inflation can be dangerous for retirement savers because it affects you in many ways. First, soaring housing, food, and gas costs make it harder to secure a budget and make people want to cut back on their retirement contributions. Second, inflation undermines the value of investments. Especially when the market is not keeping up with the exponential increase in daily spending. 

These factors are causing some workers to cut back on retirement savings, experts say. In fact, he told Schwab, about 1 in 7 investors have cut their retirement benefits to deal with inflation. 

"When you reduce your 401(k) contributions, you weaken the power of compounding interest, which is critically important for future healthy nest eggs," says Catherine Goladay, Managing Director and Head Charles Schwab spoke to CBS Moneywatch about Workplace Financial Services.

Wall Street plunged into bear marketin June. This is the term used to describe a stock price that has fallen at least 20% from its most recent high. But he saw stocks rebound in July, regaining some of the lost market, and the Dow Jones Industrial Average dropped just 10% in his year. did not fall. Still, the drop may feel especially painful once inflation rises above 9%. 

Here are his three tips from the experts on mistakes to avoid managing his 401(k) as stocks wobble and inflation rises. increase. Don't check your

401(k) balance every day.

When the financial markets are on a rollercoaster ride, you may be tempted to check your 401(k) balance often. After all, you want to know if you're taking a bath or avoiding the worst. 

But research by behavioral economists shows that it can backfire. Behavioral economists have found that people are often irrational when it comes to money. For example, Richard Thaler, a Nobel Prize-winning behavioral economist,,said that when retirement savers saw their short-term rates of return change inversely, he called "myopic loss aversion." discovered that they suffer from a phenomenon called. bad.

In other words, if your 401(k) goes down, you may sell or shy away from long-term profitable investments for fear of incurring further losses. The investor who looked at the simulation of returns for only one year decided to allocate 41% of his funds to equities, whereas the investor who looked at longer-term returns allocated 82% of his money. Thaler discovered that he  

This study was published in his 2007. This was long before his iPhone and financial apps that showed his 401(k) balance with a tap of the screen. Experts say that in today's digital age, it's more important to avoid obsessively checking balances. 

"Consumer involvement is great, but seeing it every day can make some people panic," Golladay said. 

Don't Cut Your 401(k) Contributions

Approximately 15% of 401(k) Investors Decrease their Retirement Contributions to Fight Inflation Schwab found that it does. However, it can backfire in the long run. 

"The last resort for someone is a 401(k ),” Golladay said. Put away your money, given the strain on your current household budget.

You may also be tempted to downsize given the tough stock market. After all, why should we put more money into the market when stock prices are falling? But experts point out that investing a certain amount of money per paycheck through a 401(k) gives you "dollar cost averaging." 

"One of the things we remind our families is, yes, money is tight, but if you're going to buy a good investment that's only temporarily depreciated in value, It's using the concept of dollar cost averaging, which is your advantage," Primerica CEO Glenn Williams told CBS MoneyWatch. "And you will be given more time, which you won't get later."

Don't Focus on Your Retirement Gap

Current Savings It can be daunting to watch and realize that you still have a long way to go in meeting your retirement needs. In fact, some may decide that they will never achieve their goals.

And these goals are big. When recently asked how many socks they would need to wear to pay for their retirement, Americans with 401(k)s answered $1.7 millionMeanwhile, the average defined contribution plan, which includes 401(k) and 403(b) plans, had a balance of about $141,000 in 2021. According to  

Looking at the gap between your savings target and your actual account balance can be disappointing. But experts say setting financial goals and talking to an advisor can help retirement savers stay on track. Many companies also provide professional investment advice to their employees. This will help you create steps to reach your goals.

"That's the percentage of people who feel it's not achievable, but [talking to an advisor] provides actionable steps to help them get there," Goladay said. said Mr.

These goals could include incremental increases in retirement contributions, such as increasing the percentage of salary paid directly to her 401(k) when she gets a raise. , she pointed out. 

"Start small," she said. “It can be overwhelming to believe that there is a huge gap in yourself, but there are so many examples of people starting small, progressing over time, and eventually ending up in a better place.”