What if My 401(k) Isn't Performing?

A 401(k) can be an important tool for creating retirement wealth. These defined contribution plans can be funded by elective salary deferrals and employer matching contributions, both of which enjoy tax-deferred growth. When you're ready to retire, those savings may be one of your main streams of income. But what do you do when a 401(k) plan isn't posting the kind of returns you'd like to see? There are different reasons why a 401(k) may underperform—and several ways to counteract them.

Key Takeaways

  • A 401(k) is a tax-advantaged defined contribution plan that's funded through elective salary deferrals and employer matching contributions if offered.
  • Investing too conservatively is one reason why your 401(k)'s performance may not match up to your expectations.
  • Stock market volatility is another common culprit when 401(k) returns fall short of an investor's goals.
  • Diversifying investments, minimizing fees, and maintaining contributions can help to counteract flagging 401(k) returns.

Why a 401(k) Might Underperform

A 401(k) plan is an investment vehicle. As with any investment, high returns are not guaranteed. In fact, returns aren't guaranteed at all the way they might be with something like a certificate of deposit (CD) account or low-risk bond. That said, there are a few reasons why your plan may deliver a lackluster performance.

Reason No.1: You're playing it too safe

Investing too conservatively for your age, time horizon, and goals could result in underperformance in your 401(k). Generally, the younger you are, the more risk you can afford to take as you have a longer window in which to recover from market downturns or periods of increased volatility.

Historically, the stock market has delivered annual returns of roughly 10%, which dips to 7% when adjusted for inflation. If your 401(k) investments are delivering 5% or 6% instead because most of your money is tied up in bonds or lower-risk stocks, then your savings may fall far short of your end goals.


Though target-date funds (TDFs) can offer a simplified investment option for 401(k) savers, it's important to understand the fund's glide path and projected returns over your working career.

Reason No.2: You're paying high fees

Fees, including administrative fees and fund expense ratios, can take a sizable bite out of your 401(k) returns. For example, the average fee for large 401(k) plans with $50 million in assets was 0.88%, as of 2021. The average fee for smaller 401(k) plans with $5 million in assets was 1.19%.

Most 401(k) plan fees have actually been on a steady downward trend in recent years, but it's important to remember that not all plans are the same. It's possible that less-than-stellar returns may be the result not of your investment choices but the fees you're paying.


Expense ratios for individual mutual funds can vary widely depending on whether the fund is actively or passively managed and its overall investment strategy.

Reason No.3: Stock market volatility is up

The stock market can be volatile and unpredictable even on its best day. When volatility picks up, the value of your 401(k) can drop if stock prices are nosediving. There are different factors that can cause price fluctuations, which you have little control over as an investor. Speculation about interest rate hikes, inflation, and a global health crisis are just some of the factors that have triggered a spike in volatility in recent years.

What to Do if Your 401(k) Is Underperforming

If your 401(k) is losing money or just isn't delivering the kind of returns that you want, it helps to have a strategy for coping. There are a few things you can do that could help to boost your returns and get closer to your investment goals.

Diversify 401(k) Investments

Diversification, in simple terms, means not putting all of your investment eggs in one basket. When you diversify investments, you spread out risk while keeping rewards in sight. If your 401(k) is underperforming or even losing money, making sure you're properly diversified can help.

Most 401(k) plans allow you to invest in mutual funds, index funds, and exchange-traded funds (ETFs). Each one represents a basket of securities, which are curated based on the overall objective of the fund. If you have multiple mutual funds or ETFs in your plan, taking a look under the hood can give you an idea of how diversified you really are and what adjustments you might need to make to improve diversification.


Opening an individual retirement account (IRA) and/or a taxable brokerage account can provide additional opportunities to diversify investments beyond mutual funds or ETFs.

Review Plan Fees

Minimizing 401(k) fees is a strategic move that won't necessarily boost your investments' performance but can help you to keep more of the returns you're earning. If you're not sure where to start looking for a fee audit of your 401(k), look to your fund expense ratios first. There may be little you can do about your plan's administrative fees, but you can opt out of paying high expense ratios simply by choosing a different fund. If you need a guideline for evaluating fees, the average expense ratio for equity funds is 0.47%, while the average expense ratio for bond funds is 0.39%.

Wait It Out

When volatility is driving poor performance in your 401(k), there may be little you can do other than try to ride it out. Whether this is feasible for you or not can depend on how close you are to retirement and how soon you'll need to draw income from your savings.

If volatility appears to be a short-term blip and you're still relatively young, then your best bet may be to simply continue making contributions to your 401(k) at your current rate or even increase them. This allows you to benefit from dollar-cost averaging—and if volatility sends stock prices lower, you can purchase investments at a discount.

What Should I Do if My 401(k) Is Losing Money?

If your 401(k) is losing money, the first thing to do is consider why this is happening. Stock market volatility and/or poor investment choices are two of the most common causes of 401(k) losses. Diversifying your portfolio, minimizing investment fees, and not panicking when the market is down can help you to regain lost ground over time.

Why Is My 401(k) Not Growing?

If you're contributing money steadily to your 401(k) but you're not seeing any growth, the problem may be that you're investing too conservatively or that you're handing back a chunk of your returns in the form of high fees. Reviewing the performance—and costs—for each of your investments in the plan can help you to decide whether they're worth keeping or whether you should move your money into a different fund.

Can I Lose All My Money in a 401(k)?

It's definitely possible to lose money—albeit temporarily—in a 401(k) if the market experiences significant volatility that causes the value of your investments to drop. Remember that most losses are temporary. Diversifying can help with managing risk so that if the market does take a dip, your investments aren't all affected across the board.

The Bottom Line

Feeling like your 401(k)'s performance is stuck in place can be discouraging, but it doesn't mean that you can't attempt to do something about it. Understanding what you own in your plan and what you're paying for those investments can help you fine-tune your overall strategy. You can also bolster your 401(k) savings with other investments in an IRA or online brokerage account if you're interested in buying individual stocks, real estate, or other securities.

Article Sources
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  1. Internal Revenue Service. "401(k) Plan Overview."

  2. Official Data. "Stock Market Returns Since 1926."

  3. National Association of Plan Advisors. "Here's How Much 401(k) Plan Fees Have Dropped."

  4. Investment Company Institute. "Trends in the Expenses and Fees of Funds, 2021," Page 1.

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