You invest in your 401(k) to make your money abound over time, but it doesn't ever work out that way. When yous notice your savings losing value, your first instinct may be to sell everything, but this normally isn't your best option. Hither are iv things you tin can try to go your savings dorsum on track.

i. Make sure your investments are well diversified

The first thing y'all should do if your 401(thousand) or IRA is losing money is to check that you are well diversified. You want your money spread among many stocks, bonds, and other investment products. If you have all your savings tied up in a single stock and it plummets, that's a more serious issue than when yous're invested in 100 things and one of them dips in value.

Man with head on table in front of falling stock chart.

Paradigm source: Getty Images.

Few 401(k)south allow y'all to buy individual stocks anyway. You'll exist choosing common funds and exchange-traded funds (ETFs). These are groups of investment products you purchase as a packet, which is a convenient and affordable mode to diversify your portfolio.

You lot want a mix of stocks and bonds, although your preferred ratio volition depend on your goals and risk tolerance. You also need to call back about the assets and sectors you invest in. You don't want to invest also heavily in one industry, similar technology. If information technology has a fiscal crisis, your portfolio could all the same lose value even if you lot're invested in many unlike assets within that industry.

While some 401(one thousand)s may offer sector-specific funds, y'all're more likely to accept a choice between U.Due south. and international stocks or big-cap and mid- or small-scale-cap funds.

If y'all doubtable a lack of diversification is partly to blame for your 401(k) or IRA taking a hit, ask a financial counselor for tailored recommendations.

2. Ride it out

If you're young and your investments are well diversified, the best thing to do when you see your 401(1000) or IRA losing value may be zippo at all. All investments have ups and downs, and it's never wise to judge long-term growth potential by contempo performance. Even if your investments have a short-term striking, their value could rise again long before yous need the funds.

Unless you call up the investment is no longer appropriate for your risk tolerance or you question its long-term stability -- for example, if you ain stock in a company that keeps losing market share to its competitors -- leave your portfolio solitary. Go along making contributions and don't go too hung upwardly on brusk-term dips. They could actually benefit y'all in the long run if yous purchase shares when prices are low and they after rise.

3. Motility your money to more stable investments

If you lot're nearing retirement age and y'all see your 401(thou) declining, you may not exist able to look for your portfolio to recover before you need to begin using that money. In this example, move more of your coin to more stable investments like bonds. When you lot buy a corporation's or a government'southward bonds, y'all're lending money to that entity, which information technology promises to pay dorsum with interest over time. The only way you wouldn't be repaid would be if the entity defaults on the loan, which doesn't happen often -- unless you're talking virtually junk bonds.

Another option for the bourgeois investor is low-volatility ETFs, also known as minimum variance ETFs. These are known for experiencing fewer ups and downs than about ETFs.

These investment products may non provide every bit large a return as private stocks, only they also tend to be more stable, so there's less risk of them losing a lot of their value.

iv. Information technology'south sometimes possible to get a taxation deduction, but that may not be worth it

The regime allows you to claim a tax deduction if your 401(yard) or other retirement plan has lost value, merely there are rules you must follow. First, you must take footing. In this case, basis refers to nondeductible contributions you've made. Deductible contributions -- those that reduce your taxable income for the year -- exercise non count. Y'all haven't paid whatsoever taxes on that coin so far, so the government is not going to give you a tax deduction on the amount yous lost.

You also must close all retirement accounts of the aforementioned type in order to calculate the loss. So if yous're trying to claim a loss on your 401(k), you must close all of your 401(thou)south. And so you total your nondeductible contributions and the current value of the accounts, and you can write off the divergence if the electric current value of the accounts is lower.

But this is inconvenient for two reasons. First, if you lot withdraw money from your 401(k) before age 59 1/two, y'all pay a 10% early withdrawal penalty. This may negate some of the benefit you become from writing off the loss. 2d, if you lot take the money out of your 401(m), you're giving up the revenue enhancement advantages it offers and your coin will no longer grow equally quickly unless you invest it in something else.

For these reasons, it'due south non wise to merits a taxation deduction on a 401(k) loss unless you're older than 59 1/2 and plan to use the money to cover your retirement expenses in the near future anyway. Otherwise, try ane of the suggestions to a higher place.

You can't command the stock market, simply by agreement how information technology works and avoiding impulsive decision-making, you lot can handle temporary dips in the value of your retirement assets.