#youtube #401k #yahoofinance
This segment originally aired on June 16, 2023.
How often should you be checking your 401(k)? Sarah Newcomb, Thrive Financial Empowerment Center Founder, and David Blanchett, PGIM DC Solutions Head of Retirement Research, spoke to Yahoo Finance Live anchors Akiko Fujita and Diane King Hall to explain why checking your 401(k) savings too often could actually be “checking against your goals”.

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Why Checking Your 401(k) Could Be the Wrong Move

When it comes to retirement savings, many people diligently contribute to their employer-sponsored 401(k) plans, year in and year out. However, constantly checking the value of your 401(k) could actually be counterproductive and detrimental to your long-term investment strategy. Here’s why:

1. Short-Term Volatility: The stock market is known for its short-term volatility. Daily fluctuations can be triggered by various factors such as economic data, geopolitical events, or even social media trends. Constantly checking your 401(k) could lead to emotional responses tied to these market swings, potentially driving you to make impulsive investment decisions based on short-term noise rather than long-term goals.

2. Market Timing: Regularly monitoring your 401(k) balance might tempt you to engage in market timing – the futile attempt to predict when to buy or sell investments based on perceived market trends. Countless studies have shown that market timing is incredibly difficult, if not impossible, to consistently execute successfully. Trying to outsmart the market often leads to buying high and selling low, which is the opposite strategy needed for long-term investment growth.

3. Discourages Regular Contributions: Focusing on short-term fluctuations can detract from the importance of consistent contributions to your 401(k) plan. Over time, regular contributions are fundamental to building your retirement nest egg. By checking your 401(k) too frequently, you might lose sight of the bigger picture, neglecting the importance of consistently saving for your future.

4. Long-Term Performance Matters: As the adage goes, “It’s not timing the market, but time in the market that matters.” The purpose of a 401(k) plan is to invest for the long term, taking advantage of compounding returns over time. While short-term market fluctuations can be nerve-wracking, it is important to remember that successful long-term investing requires staying the course and not being influenced by market noise.

5. Increased Stress and Anxiety: Constantly checking your 401(k) balance can lead to increased stress and anxiety, especially during periods of market volatility. It’s a rollercoaster ride that can negatively impact your overall well-being and potentially lead to hasty, ill-advised decisions regarding your retirement savings.

So, instead of obsessively monitoring your 401(k), consider adopting a more hands-off approach. Review your investment strategy periodically, perhaps once or twice a year, to ensure it aligns with your long-term goals and risk tolerance. Seek professional advice from a certified financial planner who can help you develop a disciplined investment plan tailored to your needs.

Remember, building wealth for retirement is a marathon, not a sprint. Stay focused on your long-term objectives and resist the urge to make knee-jerk reactions based on short-term market shifts. By avoiding constant checking of your 401(k), you can maintain a healthier relationship with your investments and improve your overall financial well-being.