You watched your 401(k) retirement savings plummet this year. Time to panic? Experts say no.

It is true that many of the big mutual funds that retirement savings hold in their 401(k)s tanked in 2022. The T. Rowe Price Blue Chip Growth Fund (TRCBX) is down 42%, and even the broadly diversified Vanguard 500 Index Fund (VFIAX) has lost nearly 20%.

Target-date funds tied to a projected retirement date are battered, too. The Vanguard 2050 target-date fund (VFIFX) has fallen 18%, and the Fidelity Freedom 2040 fund (FFFFX) has tumbled 24%.

‘A Lot to Be Excited About’

But the 401(k) glass can be seen as half full for anyone not yet retired with at least a few years’ investment horizon, or even retirees who like to have skin in the stock market game, Bloomberg reports.

Stocks and bonds have decreased so much in 2022 that their chances of rising in 2023 have increased, experts say.

“Anyone with a longer-term mindset has a lot to be excited about,” says Nathan Zahm, head of goals-based investing at Vanguard’s investment strategy group. “This year was hard in terms of returns—but that has really increased the expected returns going forward. You have a better outlook now that you did 12 months ago, when equity valuations looked very stretched and bond returns were 1.5%.”

Those who feel burned by the declines and volatility of the market this year, might join the many 401(k) savers moving out of target-date and large-cap U.S. equity funds and company stock into stable-value and money market funds, as tracked by the Alight 401(k) Index.

Sock Away More

You can also always save more. A lower 401(k) balance might make many investors revisit their savings rate.

In 2023, you can save $22,500 in a tax-advantaged savings plan, like a 401(k)—$2,000 more than 2022. People 50 and older will be able to invest an additional $1,000 in “catch-up” funds, i.e. $7,500, up from the $6,500 catch-up this year.

Above all, the important thing, financial planners say, is to continue to save and invest for retirement. Or to sum it up in three words: Stay the course.





 

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