I’ve had a few people in my life tell me that they lost X % of their 401k during the (insert financial crisis).

Recently when a friend told me they lost 50% of their 401k in the 2008 time, I said: “Well you didn’t really lose anything, because you still had the stocks, and even though they were worth less, you still had the same number of stocks, so you could have waited it out?”

To which my friend replied: “That would be true if the person managing my 401k didn’t sell”.

I hadn’t actually thought about that. I mean personally most of my funds are in age based target funds, but those funds are also managed by someone, right? So is there a way to prevent someone from selling your stocks if the economy tanks? I have a pretty long retirement horizon (still in my 30s) so I can weather the storm for a bit.

Edit: Thank you everyone for the insightful answers. This really helps to clear things up

  • waldenA
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    9 months ago

    I worked with a fellow once who said something to this effect right after the market went down during the pandemic. He said something like “I lost $50k yesterday”, and I asked him “oh really? Did you sell a bunch of stuff? If you still have it it’ll go back up eventually”.

    He said “No I didn’t sell anything, but in 5 years everything is going to be lower than if the market hadn’t gone down”.

    That take is also wrong. As you can see in this graph, things bounced back, and in general continued on the same trajectory.

    Just like there was a sharp decline, there was also a sharp increase. Without the decrease, the increase wouldn’t have happened, so the fellow I was working with was wrong, because his take would have meant the sharp increase would have happened even without the sharp decrease.