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I have just switched my 401k plan over to the new company I work for. My rate of return is -5.13%. My payroll deduction is 8% and for some reason I guess my company is not matching at all as stated because it says 0% company contribution. Am I losing money out of my 401K??

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    Sometimes a company's 401k match is dependent on a 1-year trial period or similar. Double check with them to make sure you're meeting the requirements for the match. The match is a 100% return so if they offer it, get it!
    – Nosjack
    Commented Oct 14, 2021 at 18:04
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    @Nosjack - Maybe - some match at 50%, or (one I know) matches at 100% of first 4%, 50% of next 4%. So it takes an 8% deposit to get the most match, 6%. Either way, free money. Hopefully, the expenses are low. Commented Oct 15, 2021 at 9:08
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    "I guess my company is not matching" This is not something you should be guessing at. Find out! And then make sure you are contributing enough to take full advantage of any match.
    – Glen Yates
    Commented Oct 15, 2021 at 15:36
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    Your company won't match money you rollover from a previous employer, they'll only match new contributions made while you work for them. So no surprise that if your current balance is 100% rollover 0% deferrals that the matching is also 0%.
    – Ben Voigt
    Commented Oct 15, 2021 at 16:15
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    What time period is that -5% return from? The broad stock market has returned about 30% over the past year, and the only big recent downturn was at the beginning of the pandemic in March of 2020.
    – Barmar
    Commented Oct 15, 2021 at 20:07

4 Answers 4

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That depends on your definition of losing money, and the specifics of where your 401k money is invested. If for instance you invest money in an index fund, and the index declines (as it has in recent weeks), then technically you have lost money.

However, you need to remember that you are investing for the long term. Assuming you're just starting out, and have maybe 40 years before you can draw on those investments (without penalty), it's virtually certain that you will experience several large market drops, and just as many recoveries.

And don't forget that the tax savings on your 8% investment isn't counted in that rate of return :-)

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    Totally agree with this, but it's also possible that they're losing money through higher fees/expense ratios in the new plan
    – Cody
    Commented Oct 15, 2021 at 16:55
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    @Cody 5% would be pretty exhorbitant fees.
    – Barmar
    Commented Oct 15, 2021 at 20:00
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    Yeah, but certainly not unheard of. I've had 401(k)s that offered funds with front-load fees around 5%. I didn't choose those funds, but if I didn't know any better, I might have.
    – Cody
    Commented Oct 15, 2021 at 22:19
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    The tax savings isn't counted as a return because it isn't a return. You have to pay taxes on withdrawals. Unless you can predict the future and know that your tax bracket in retirement (three-four-five decades away) will be significantly less than it is now, traditional vs. Roth is mathematically a wash.
    – nobody
    Commented Oct 16, 2021 at 13:20
  • @nobody: Didn't I specifically say that it wasn't counted in the return? It's still a benefit to you, because you are not paying that tax NOW. You will have it in the account and earning money for many years.
    – jamesqf
    Commented Oct 17, 2021 at 4:29
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You didn't say how recently you started the 401k with the new company, but I am assuming it is less than a year. You really shouldn't focus on returns on a retirement account on such a short timeframe. Stocks don't always go up, they bounce up and down over time, but the long term trend is usually positive. I wouldn't be worried unless you had a negative return over 5 years or more. October this year was not a great month for the stock market, but you have nothing to worry about considering you probably have 30-40 years for that money to grow.

With respect to the employer matching contribution, many employers do that as a lump sum just a few times every year instead of depositing it immediately along with your paycheck.

Don't stop your contributions based on such a short term loss.

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Compare to the performance of the S&P 500 for the same period

Endowment manager here. Endowments are large blocks of capital which are invested, with their gains funding various social programs such as university teaching positions or museum operating expenses. (those museums survived in 2020, that being the point of an endowment). Endowments are invested about the way a <50 year old would invest a 401K. When I first sat on a Board that had an endowment, I got a real eye-opener about how investing actually works.

The government requires we invest endowment funds prudently so they will be assured of providing future income without shrinking the endowment's core value (adjusted for inflation). As such, they require us to be about 70% in the stock market, and highly diversified (a lot like typical 401K investments). Some very large endowments do more complicated stuff, but the average endowment invests very simply.

Point being, the average endowment invests very similarly to your 401(K), and they are tightly supervised and regulated, and legally required to be prudent. So how they invest is a very good lodestar for how you should invest a 401(K).


So if the market is storming up 25% in a year or plunging 20% in a year, how do we even get a reference for if we're doing OK? That's easy - there are market indexes.

  • S&P 500 for large stocks
  • S&P Aggregate Bond Index for bonds at large.

So we compare the S&P 500 to the performance of our large stocks.

Let's suppose our stocks grew 21% this year, great year, right? Hold on though, the S&P 500 grew 30%. Well that's a horrible year, we should have gotten 30% but only got 21%. Something is wrong, and we need to investigate that!

Might it just be a spot of bad luck in picking stocks that did particularly badly that year? Maybe, but diversification should largely eliminate that threat. But it could also be excessive "overhead" being charged by the investments.

Shouldn't we count our blessings and be glad for 21%? No. That 9% "leakage" might be there in any market. If the S&P had fallen 20% this year, we would be down 29% - and we can't afford that!

Beating the index is essentially impossible

Mind you, it's impossible to actually achieve S&P 500 returns. Even if you bought an "index mutual fund" that holds exactly the S&P 500, that fund will have overhead of 0.04% to 0.1% ($4 to $10 on $10,000) per year.

A typical "managed fund" (genius stock picker selecting stocks) has a 1.5% overhead ($150 per $10,000) per year. And it's extremely difficult for that funds manager to beat the index by 1.5%. If it happens, it's a stroke of luck, and is not repeatable year by year by year.

This is documented in countless studies and John Bogle's canonical book "Common Sense on Mutual Funds".

Risk is not a thing in long-term investing

Some people use the word "risk". In long-term investing, we call that volatility. Volatility is the normal "jinking up and down" of market values based on market conditions. It only seems like a crash when you're focused in the moment. It's actually a waveform. And it's a waveform with a good trend, which is why we're in it.

And here's a basic fact about investing: volatility corresponds to growth. The investments with the highest growth have the highest volatility. Fact of life.

That simple truth is why investing in stocks makes sense despite the roller coaster experience.

If there's any risk, it's in NOT investing in the market. If an endowment manager "played it safe" 100% in municipal bonds and money-market funds, then concerned donors or the attorney general would raise pointed questions about "why". There might be a good reason; one endowment I funded was invested in CDs for awhile.

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  • John Bogle said that risk is not volatility. Volatility is how we often measure risk. A statistician might formalize risk as dispersion.
    – Neil G
    Commented Oct 16, 2021 at 6:20
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I think it is also important to note here that every investment comes with some risk. Furthermore, the potential reward is generally proportional to the risk.

In other words, it is important to understand exactly what the funds you're putting into your 401k are buying.

There are two concepts in play here that are intertwined, but can be thought of separately.

The first is the concept of the 401k account. This exists to help encourage one to save for retirement. It comes in two main flavors: traditional and Roth. Tradition is tax-deferred in that when you put dollars from your paycheck into the account, those dollars do not count as income for income tax purposes. The IRS will be counting it as income when you take money back out in the future in retirement. A Roth account allows you to pay the income tax on your contributions today so that when you take that money back out, it won't be taxed then. In that regard, it becomes a choice of pay taxes on the money now, or pay taxes on the money later.

Both of those are in comparison to a regular brokerage account. There is no choice for deferring taxes on contributions to a regular account, and if what you buy in that account makes money by paying dividends, or you sell things in there for a profit, you must pay taxes on that this year. Avoiding that is the main advantage of having a 401k -- it is a tax-advantaged savings vehicle.

So now that you know why having a 401k is nice, the second concept to talk about is what to do with the money that is in there. This is where my first statement about the risk comes in.

You could leave the money being contributed into the 401k in cash, and chances are good the agency keeping the account for you will pay bank interest on that amount. On the order 0.01% today. Very, very, very small, but very, very safe.

You could use the money in the account to buy bonds and bonds funds. These will pay you a little more probably on the order of 1-3% right now, but will be a little riskier. I.e., there is a chance the bond issuer cannot pay back the bond and defaults. Bonds' value also changes in response to the fed interest rate and how the stock market is doing. But generally, bonds value is pretty stable, but slow growing -- a little more reward for a little more risk.

Next would be buying stocks. Stocks are going to be riskier, but also possibly more rewarding. To wit, over the last many decades, the S&P 500 stock index has averaged going up 10% in value each year. However, there are years where the value is negative. There are also years where the value goes up much more than 10%. As the other replies mentioned, the long, long term trend for stocks is to increase in value. However, the risk is that their values will bounce around, maybe even into the negatives.

If you cannot stomach that happening, then you need to have your money in your account in less riskier things, knowing that it will also be missing out on making bigger gains. Again, the is the balance of risk and reward.

Chances are really good that what you actually want is a blend of different investments. Some amount of money in bonds, some in stocks, maybe a small amount in even riskier things and a small amount in ultra-safe things. How to figure out what blend works for you is going to be personal and will take some research on your part. Search for topics like "investment portfolio diversification". You will have to balance in your tolerance for risk with your savings goals and timelines.

Lastly, if that last paragraph seems overwhelming, there is almost surely a 'target date fund' in your 401k. This is a fund specifically built to try their best at doing the balancing mentioned above based upon your age and your expected retirement date (most I have seen have target dates that end in 5 or zero, e.g. a 2040 or 2045 target date). These funds will have more money in stocks when today's date is far from the target date to try to leverage that long-term avg of +10% growth of stocks. Then, as today gets closer to the target date, they will shift money from stocks to bond so that there is less (no zero!) fluctuation of the value so that when you want to access that money to use in retirement, it doesn't bounce around too much at the whims of the market at that time. If you are unsure where to put your money, this is most likely a good starting point.

Again, just to reemphasize the other responses, it could bounce down a little if the stock market goes down, but over a long time span, it is probably a pretty solid choice.

So hopefully that clears up both what your 401k account is doing, why it is valuable, and how to use the money you're putting in there to balance your personal tolerance for risk and reward. If there are further questions, please don't hesitate to ask them to this site. I think we're a pretty decent community and we're usually pretty good about answering questions.

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