How Much Has Been Lost in 401(k)s?

target date funds bonds

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All asset classes except gold and commodities have lost money so far this year.

So how have your 401k investments fared? This question usually depends on your risk and diversification, but it’s not so this year unless you manage risk with TIPS and cash.

Traditionally risk has been controlled with bonds, but not this time. U.S. bonds lost 9.6%, and foreign bonds lost 15.5%. Going forward, bonds will continue to lose money as the Fed takes the break from its ZIRP (Zero Interest Rate Policy).  

Your loss

The following graph shows that target-date fund (TDF) performance provides a good barometer for what you should expect. Your losses can range between 2.9% and 11.9% depending on your investment horizon and how you control (manage) risk.

Here’s a breakdown of the results. The important message is that bonds are not protecting investments effectively. 


Conclusion     

The end of ZIRP is just beginning because The Fed cannot continue ZIRP and fight inflation. ZIRP requires money printing that causes inflation.

Consequently, bond prices will fall as interest rates return to unmanipulated levels, so bonds are not a good risk control. Protect yourself accordingly.  

Ron Surz is President of Target Date Solutions, a DBA of PPCA inc. He is also the author of Baby Boomer Investing in the Perilous Decade of the 2020s. He can be reached at Ron@TargetDateSolutions.com.

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