Why Is My IRA Losing Money?

Saturday, April 20th 2024

Individual Retirement Accounts (IRAs) are popular investment vehicles designed to help individuals save for retirement by contributing a set amount each year and investing it across a wide array of assets such as stocks, bonds and mutual funds. Although IRAs can be an excellent way of building wealth through retirement savings efforts, investors may notice they’re losing money from time to time – this post explores why an IRA might lose money at certain times and provides strategies that could address such problems to maximize its savings potential.

Market Volatility

One of the primary factors contributing to your IRA losing money could be market volatility. Stock markets, for example, can experience unpredictable changes due to factors including economic data, political events and company announcements; these fluctuations could cause periods of negative returns resulting in its value decreasing significantly over time.

Strategies to Overcome Market Volatility:

Diversification: Diversifying your portfolio with stocks, bonds and other asset classes is one way of mitigating market volatility and its effects. By diversifying, your chances are reduced of an event or the underperformance of one asset class impacting all or most of it simultaneously.

Long-term focus: Retirement investing should be treated as an ongoing project; market fluctuations are to be expected and it is wise to maintain a long-term approach when making investment decisions and avoid hasty decisions based on short-term fluctuations.

Investment Performance

Your individual retirement account (IRA) investments have an enormous effect on its value; for instance, investing large chunks of it in underperforming assets could cause its worth to decrease significantly over time.

Strategies to Optimize Investment Performance:

Regular portfolio review: Conduct an ongoing portfolio review in order to make sure it matches with your financial goals and risk tolerance, identify any underperforming investments, and adjust accordingly as necessary. Doing this regularly will enable you to identify underperformers quickly so necessary adjustments can be made where required.

Professional advice: For investors unsure about their investment choices, seeking guidance from a financial advisor could prove invaluable in devising an individualized investment strategy and providing tailored recommendations based on individual financial situations and goals.

High fees over time: Fees can have an adverse impact on the performance of an IRA account, diminishing investment returns and contributing to its downfall. Examples of such fees could include expense ratios for mutual or exchange-traded funds (ETFs) (1), transaction and account maintenance fees.

Strategies to Minimize Rising Fees

Fee awareness: Be wary of fees associated with investments and IRA providers. Research various providers’ and options’ fees in order to get the maximum return for your money.

Low-cost investment options: Look into low-cost investment solutions such as index funds (2) or ETFs that tend to have lower expense ratios compared to actively managed funds.

Inflation rising: inflationary trends threaten your retirement savings’ purchasing power; if investment returns don’t outstrip inflationary effects over time, real values in an IRA account could decrease over time and diminish over time.

Strategies to Tackle Inflation

TIPS and REITs: Consider investing in inflation-protected investments such as Treasury Inflation-Protected Securities (TIPS) or real estate investment trusts (REITs), for your portfolio’s protection.

Growth-oriented investments: Focus your attention on investments with higher potential returns that could outstrip inflation, such as stocks or stock-based funds, although be mindful that they could carry higher levels of risk.

Withdrawals and RMDs

Are You Withdrawing or Substantiating RMDs From an IRA? Doing either could cause your account value to drop over time if withdrawals and RMDs reduce its balance, without enough returns generated to offset these distributions from investments in your IRA.

Strategies to Address Withdrawals and RMDs:

Withdrawal planning: Create an appropriate withdrawal strategy by factoring in investment returns, tax ramifications and your retirement income needs into your plan. Doing this will ensure you do not withdraw too soon from your IRA balance and deplete it prematurely.

Delay RMDs: If your income from an IRA exceeds your needs, consider deferring RMDs until later so as to give investments more time to grow. However, be mindful that missing RMDs when due could incur penalties; seek professional guidance if needed in order to be compliant with IRS rules and stay away from penalties.

Poor Asset Allocation

An inappropriate asset allocation tailored to your specific financial goals, risk tolerance and time horizon can also cause your IRA savings to dwindle away over time. An overly conservative allocation may not produce sufficient growth to outstrip inflation while too aggressive an allocation exposes retirement funds to excessive risks.

Strategies to Correct Poor Asset Allocation

Review Your Risk Tolerance: On occasion, review your risk tolerance to ensure it matches up with both your financial circumstances and retirement goals. Doing this allows you to make any necessary changes or modifications to your asset allocation as required.

Age-Appropriate Asset Allocations: If you are nearing retirement, think about changing your asset allocation in favor of more conservative strategies in order to safeguard your retirement savings from massive market volatility that could occur as you near this date. This can help reduce the risk of negative consequences of major market crashes that could affect these savings in the later stages.


Many factors can lead to your IRA losing money, including market volatility, investment performance issues, high fees, inflation rates, withdrawals/RMDs/and poor asset allocation. By understanding and responding accordingly to each of these challenges, it will help safeguard retirement savings while moving closer towards meeting long-term financial goals.

Maintain a long-term mindset when investing for retirement and be proactive when monitoring its performance. Seek advice from an independent financial advisor so they can guide you through the complexities of retirement investing and provide customized strategies tailored specifically towards meeting your unique financial situation and goals.

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