Saving for retirement is vital, and an Individual Retirement Account (IRA) can help your savings grow tax-free. But keep in mind that balances of IRAs may fluctuate from time to time – an IRA might not always offer tax breaks as you invest.
Do not panic if the value of your IRA drops – most financial experts advise keeping it invested even though its worth may decrease.
1. You’re not investing enough
An essential component of saving for retirement is investing your funds. This may involve stocks, mutual funds or exchange-traded funds which rise and fall in value – this will impact how your IRA balance changes accordingly.
While seeing your IRA balance decline may be upsetting, that doesn’t have to be cause for alarm if there are still years until retirement. Your IRA should eventually recover over time and provide you with enough savings for comfortable retirement.
To preserve your IRA, it is wise to invest regularly in assets that match with your risk tolerance and long-term financial goals. Furthermore, it may be prudent to rebalance your portfolio periodically or consider switching it over to an index annuity as this option protects it from the stock market’s unpredictable cycles and reduces volatility.
2. You’re investing too much
Being faced with your IRA balance falling can be disconcerting, but that should not come as a shock if your retirement date is still many years away. Provided your investments meet both your goals and risk tolerance criteria, your IRA should eventually recover from market dips over time.
Last year’s stock market drop caused many IRAs to experience losses; and it is likely that some won’t regain those values this year or next.
That may be because you could be investing too much. While diversifying across stocks, bonds, mutual funds and exchange-traded funds (ETFs) is beneficial in mitigating potential falls from individual investments, you could over-allocate to one asset class such as stocks – which limits future gains over time and shortens its lifespan in your IRA.
3. You’re investing in a volatile asset class
When investing in volatile assets such as stocks, mutual funds or exchange-traded funds (ETFs), your investments may experience periods of volatility. Prices fluctuate erratically making it hard to keep up with market changes.
Market fluctuations can cause some investments, including those held within your IRA account, to lose value. But with an understanding of market cycles and long-term investment horizons in mind, losing money from your IRA should likely not be an issue.
Diversification, proper asset allocation, rebalancing regularly and monitoring your account on an ongoing basis can all help protect against losses in an IRA account. You might also consider low-risk investments like bonds and fixed index annuities for some market exposure without risking your balance in an IRA account.
4. You’re investing in a low-interest rate environment
Stock markets can be unpredictable, and it’s common for your IRA balance to fluctuate as you save for retirement. To stay on the right path and build wealth over time, the key is consistent saving, aligning investments with your goals and risk tolerance, diversifying, and monitoring regularly.
Young investors still years away from retirement should invest more heavily in equities since these have the highest potential for growth than bonds. Target date funds, which automatically adjust asset allocations as your retirement date approaches, may help ease risk; but keep in mind that stocks could lose value if interest rates fall below historical averages.
5. You’re investing in a high-risk asset class
Diversifying your portfolio when investing in stocks, bonds, mutual funds, ETFs or annuities inside an IRA is important to mitigate risks as assets in these accounts may fluctuate in value due to various reasons.
As an example, the stock market can be unpredictable and cause your IRA value to fluctuate wildly, impacting its value significantly. Furthermore, certain investments may offer lower liquidity than others – this may make accessing money more challenging if needed quickly.
Remember, IRAs are designed for long-term investment. Market downturns should be seen as part of the process; over time your IRA should rebound with consistent investing practices and patience.