It usually starts innocently. You log in to your retirement account to check something unrelated, and there it is: a number noticeably lower than last time. Your stomach drops. You start doing math about how much you've "lost." And suddenly you're searching online for whether you should move everything to cash.
This exact moment shows up constantly in personal finance forums: "My 401(k) is down thousands. Should I stop contributing? Should I switch to something safer?" If you've been there, the reaction is completely normal. But it's worth understanding what's really going on.
Losses Hurt More Than Gains Feel Good
One of the most well-established findings in behavioral finance is loss aversion: losses tend to feel more painful than equivalent gains feel pleasant. A decline of a few thousand dollars can sting far more than a gain of the same amount ever felt good.
That imbalance becomes a problem when combined with something researchers call myopic loss aversion, the tendency to evaluate long-term investments over short time frames. The more often you look, the more likely you are to catch the portfolio on a down day, week, or month. Because each decline hurts more than each gain helps, frequent checking can make a sound long-term strategy feel unbearable.
In other words, the investment may not have changed at all. Your viewing habits changed how it feels.
A Paper Decline Isn't a Realized Loss
When markets drop, the value of your holdings declines on paper. That's real and it matters. But for long-term investors, a temporary decline is different from a permanent loss. A permanent loss typically occurs when investments are sold at lower prices and the proceeds aren't reinvested, or when an individual holding fails entirely.
Diversified portfolios have historically experienced many declines along the way, some of them significant. Selling during a downturn locks in the decline and removes the opportunity to participate in any subsequent recovery, though, of course, past patterns don't guarantee future outcomes.
Why Continuing to Contribute Can Matter
If you're still working and contributing to a retirement plan each paycheck, downturns have a silver lining that's easy to overlook: your regular contributions buy more shares when prices are lower. Stopping contributions during a decline means missing that opportunity, along with any employer match you may be eligible for.
Healthier Habits for Watching Your Money
1. Check less often. For long-term retirement accounts, quarterly or even annual reviews are often plenty. Consider turning off balance notifications or removing the app from your home screen.
2. Look at the longer view. If you do log in, look at your progress over several years, not just the last month.
3. Remember your time horizon. If retirement is fifteen or twenty years away, today's balance is just one snapshot along a long road.
4. Review your risk level when you're calm. If a downturn makes you truly unable to stay the course, your allocation may be more aggressive than is right for you. That's worth adjusting, ideally after emotions settle and as part of a thoughtful review rather than as a panic move.
5. Talk it out before acting. A quick conversation with a financial professional can often provide perspective that's hard to find when you're staring at a red number on a screen.
Turning Downturns Into Check-Ins
Rather than treating a market decline as an emergency, some investors find it helpful to treat it as a scheduled reminder to review a few things: Is my emergency fund sufficient? Is my allocation still right for my timeline? Am I taking full advantage of my employer match? Am I rebalancing as planned? Framing a downturn as a prompt for a thoughtful check-in, rather than a reason to react, can turn an anxious moment into a productive one.
The Takeaway
Panic after seeing a lower balance doesn't mean you're a bad investor. It means you're human. The goal is to build habits and a plan that keep a momentary feeling from turning into a long-term mistake.
If market swings have you questioning your retirement strategy, we'd be happy to review your accounts with you and make sure your investments match both your goals and your comfort level.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Past performance is no guarantee of future results.