Is it a bad idea to cash out 401k now?

Question

Is it a bad time to cash out 401k? It has went down $4000 in one month, I can't afford to lose any more, I need it to survive on.

Answer 1

yes as the stock market has a track record of earnings  and this is just a hiccup in life

Answer 2

If your house suddenly went from being worth $200,000 to being worth only $150,000 in one month, would you sell your house?

Probably not, because you know you would have to pay more for it in the future if you bought it back.

Think of your 401k in the same way.  If you cash out now, you will make your losses permanent.  You will have bought "high" and sold "low."  This is the reason why the average person does not achieve the advertised mutual fund gains over time.

If you couldn't afford to lose it, it should not have been invested in stocks or stock mutual funds (assuming that it was - you didn't say in your question).

I know it's hard.  I cringe when I open my statement.  But years ago, I decided I couldn't afford to have so much on the line in mutual funds - at  age 51, I don't have the time to make up for a few bad years.  So, when everyone else was raving about their 12% returns, I was getting only 3%.  However, now the majority of my money is invested safely at 5%, and the others are feeling the pinch.  Unfortunately, you can't have it both ways.  So, you have to diversify.  

I think it's too late for you to cash in without serious consequences.  Better to ride it out - it may take a few years, but the values should come up again.

Answer 3

Do you need it within the next 5 years? If you're not at retirement age, then it's a bad idea to pull your money out due to the penalties and taxes that you'd have to pay. I can empathize with you losing money, but nows not the time to cash out.

If seeing your fund balance go lower is upsetting to you and you are losing sleep over it, then consider transferring from whatever funds you are in now to a money market fund or bond fund within your 401k. You should  have several mutual funds to choose from, so find something and do the transfer.

If you aren't retiring anytime soon, then continue to buy into those funds that you are losing money on. I say that because it's always wise to buy things when they have been marked down on clearance....so to speak.

I do wish you well.

Answer 4

We've just gone through a wave of panic selling, but I think the consensus is we're in a "Bear Market".  Usually a panic sale is followed by folks picking up bargains, restoring prices to more reasonable levels.  You might give it a week or two at least, before repositioning your money.

You shouldn't need to cash out your 401K to protect it.  You can hopefully re-allocate your investments out of mutual funds and into a fixed investment like a money market.

Here's the bad side of that - you make or lose money when you sell your positions in an investment.  So selling now will "lock in " losses.  The question we all have to ask is where's the bottom?  Are we there yet?  In my experience we aren't at the bottom until EVERYBODY has jumped out of the market and no one wants to get back in.

Here's the good side - If you reallocate now, you will make guaranteed returns, maybe not big ones, but returns none the less.

Going forward, don't invest more in your 401K than your company matches.  Know that there are other places besides mutual funds where you can put your money and protect the downside.  Take a look at IRA indexed annuities - not the variable ones.  Some will pay you bonuses just for investing with them and let you make double digit returns when the market is good, but no losses when the market is bad.  Also, there is no cost to set them up, just a committment to leave them in the account for a prescribed period of time.

Answer 5

As long as you leave it alone it will come back as long as it A or B type stocks or higher.

It aways does.  You don't want to sell while it is down.  Ride it out and don't watch it so close and you will be able to sleep.

Micromanaging money will get you nothing but ulcers.

Answer 6

Very bad.  Your "loss" is only on paper - cash out now and it's for real.  Retirement accounts are for LONG TERM investing.