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IRA Balances Plunge 25% Due To Poor Diversification

The latest data shows that retirement account balances are beginning a deep nose dive. Here’s what not to do if you are tired of seeing your retirement vaporized. As well as what you can do to enjoy a brighter financial outlook. 

Retirement Savings Accounts Are Being Destroyed

According to the latest report from Fidelity, IRA account balances plunged by 25% year over year as of Q3 2022. 401ks suffered nearly as badly, down by more than 22%. 

The main cause of this is being blamed on stock market volatility. This is what happens when investors abdicate their finances and investment decisions. Even more so when the bulk of their retirement money is in the stock market. Chiefly due to a lack of diversification.

It does not matter if you are in 1,000 stocks, or 100 funds of funds in the stock market, you can expect the same result. It is not true diversification.

If you think those numbers are bad, just wait to watch those balances over the next couple of quarters. Bank of America expects a new recession to kick in this quarter. As things snowball, another 25% to 50% drop from current balances is not unlikely. 

Worse, many of these investors have no downside protection or floor. 

What NOT To Do

#1 Do Not Keep Doing The Same Thing

If you are bleeding money in the stock market, don’t keep putting it in, and dreaming you’ll get any better results. At least for this season of the market. 

#2 Don’t Stop Contributing To Retirement Accounts

At the same time, it will be a huge mistake to stop contributing to accounts that can generate tax deferred and tax free gains. Especially in the high tax environment we are living in, and with more taxes and tax hikes likely. 

#3 Don’t Eat The Penalties For Cashing Out Your Retirement Account

It may be very tempting to just cash out your IRA and stop the bleeding. That is not the answer. You don’t want to lose more on the penalties, or having another 30% eaten away by high inflation sitting as idle cash over the rest of this year.

Smart Money Moves To Make Now

So, what should investors and individuals do about their savings and retirement?

#1 Roll Over To Self-Directed Options

Switch to self-directed versions of your IRA and 401k. You can do this without the penalties. You may even find some tax benefits through tax loss harvesting as you sell losing stocks, and prepare to invest in more promising things.

#2 Truly Diversify Your Portfolio

Seek out true diversification. Look into the alternative asset classes available to you. Especially those that are more likely to hold value and grow, while others are losing more money in the same old stocks.

#3 Invest For Security & Income

Choose assets that offer downside protection so that you are not completely wiped out. Pick investments that can continue to throw off the same amount of passive income and cash flow, regardless of temporary paper value fluctuations.

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