How Do I Keep My IRA From Losing Money?
Your IRA investments may fluctuate in value over time, especially during volatile markets. This could be caused by various factors including not diversifying as effectively.
There are steps you can take to protect your IRA from losing money. Here are five: 1. Stay calm.
1. Don’t panic
Losing money in an IRA account can be disheartening, yet don’t let short-term losses undermine your long-term plan.
Investment of an IRA should be treated like a marathon rather than a sprint; by saving regularly and investing wisely, you could have a comfortable nest egg by the time of retirement.
If your IRA is losing money and nearing retirement age, shifting some funds into bonds may help stabilize its balance and avoid penalties; otherwise you’ll be required to take taxable withdrawals.
2. Don’t sell your investments
Your IRA likely contains a variety of securities, such as stocks and bonds. As these investments rise and fall in value, so will the balance in your IRA; but don’t fret over fluctuations – just ensure your strategy meets both long-term goals and risk tolerance!
Do not rush into selling investments when they begin losing value; by doing so, you could lock in losses and potentially miss out on any chance to recover later when the market turns around. Instead, let time work its magic – especially if you’re saving for retirement; patience will pay dividends here as less of your IRA will deteriorate over time.
3. Rebalance your portfolio
Your IRA should always be well-diversified for optimal returns and risk mitigation. Aiming for this balance requires choosing financial assets that align with your investing goals, timeline and risk tolerance – for instance stocks may deliver strong returns but they can also be volatile; while bonds – which invest in corporate or government debt – provide stability.
Rebalancing involves selling stocks periodically and investing the proceeds into underrepresented asset types in your portfolio. Some people proactively do this on their own or with help from an automated robo-advisor; others leave this process to take place automatically. Rebalancing typically happens with every new deposit (IRA contributions or retirement withdrawals) or withdrawal. It can also take place around tax time so you can take advantage of strategies like tax loss harvesting to offset taxable gains.
4. Don’t check your balance too often
Though monitoring investments is key, overdoing it may prove counterproductive and lead to hasty decisions driven by short-term market fluctuations that jeopardise long-term plans.
IRAs allow you to invest tax deductible dollars without incurring penalties or taxes on earnings or gains from investments. To reduce fees and costs, look for firms offering low account fees or use dollar cost averaging to spread out investments over time.
IRA owners who make accidental over contributions have three options for dealing with this oversight. Complete a Return of Excess Contributions Form; remove the over contributions by their tax filing deadline (including extensions); or recharacterize them and apply them towards next year’s contributions.
5. Stay the course
People frequently refer to saving for retirement as a marathon rather than a sprint for good reason: giving your investments time to recover from market fluctuations will result in an ever-larger nest egg by the time your career is over.
Though it can be disconcerting when your IRA balance fluctuates rapidly, keep in mind that markets historically fluctuate. Instead of trying to anticipate market ups and downs, make regular investments over the long haul, using dollar cost averaging to reduce fees by investing with brokers offering low trading commissions, no transaction-fee ETFs/mutual funds with helpful investment guidance, as well as no trading commissions and affordable management fees such as Betterment which offers goal-based tools with affordable fees across Roth, traditional, SIMPLE/spousal/rollover IRAs.
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