Why Is My 401k Not Growing and How to Make It Grow

The frustration of watching your 401k balance stagnate is real. If your employer matches your contributions, you're essentially leaving free money on the table.

A common mistake is not contributing enough to take full advantage of the match. In fact, a 2019 survey found that 55% of workers didn't contribute enough to maximize their employer's matching funds.

To make your 401k grow, you need to understand the fees associated with your plan. According to the article, administrative fees can range from 0.05% to 1.35% of your account balance per year.

Investing in low-cost index funds can help minimize these fees and maximize your returns. A study by Vanguard found that low-cost index funds have consistently outperformed actively managed funds over the long term.

Related reading: How to Maximize Employer 401k Match

Investing too conservatively can actually hinder your 401(k) growth. If you're within a few years of retirement, it's reasonable to focus on bonds, but if retirement is decades away, consider loading up on stocks for stronger returns.

You may be inclined to stick with what you know, but the truth is, stocks typically deliver much stronger returns than bonds.

Limited control over your investments can also be an issue, especially if your employer or financial institution has restrictions on investment options.

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If you're the risk-averse type, you may be inclined to steer clear of stocks in your 401(k) and focus more on bonds.

Stocks typically deliver much stronger returns than bonds, making them a crucial part of your investing strategy if you want to see your 401(k) balance grow.

You don't have to choose individual stocks for your portfolio, as 401(k)s generally stick to different funds where you don't get a say in the stocks you own.

This can actually be a good thing, as it takes the pressure off if you're not comfortable hand-picking stocks.

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Low-interest rates are a major concern for investors, especially when it comes to traditional savings plans. The best high-yield savings accounts return less than 1%.

The current annual inflation rate in the U.S. as of February 2022 is 7.5%, a seven-year high. This means that if you're earning less than that, you're losing ground.

Even IRA CD rates are struggling to reach 1.5%, and that often requires locking in your rates for up to seven years. This is a significant drawback for those looking for a long-term investment strategy.

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You may find that you have limited control over where your money is invested, especially if you're relying on employer-sponsored plans or financial institutions to manage your investments.

Many investment options come with restrictions that can limit your choices.

Employers or financial institutions may put restrictions on what investment opportunities are available to you.

You may want to consider a self-directed IRA as an option, which allows you to choose which type of investments you want to make within your IRA.

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If you're not making progress in your 401(k), it's likely due to one of two reasons: you're not contributing regularly or you're paying too much in fees.

You're not making regular contributions if you're not setting aside a portion of your income every pay period. This can be as simple as having a small amount deducted from each paycheck and deposited into your 401(k) account. Consider putting any tax refund or year-end bonus directly into your retirement account to boost your savings.

Additional reading: Penalty for Employer Not Paying 401k

A quarter-percent fee can reduce your portfolio by over $100,000, and a 1% fee can reduce it by nearly $400,000. To avoid these losses, review your investments and make sure they're not too fee-heavy. Consider moving to index funds, which are passively managed and charge much less.

Here are the three categories of fees to watch out for:

Don't be afraid to ask your HR department for your 401(k)'s fee disclosure document to understand the fees you're paying.

Making regular contributions to your retirement plan is crucial for its growth. If you don't make regular contributions, you'll likely have retirement investment issues.

Setting aside a portion of your income every pay period can help you establish a routine. Consider putting any tax refund or year-end bonus directly in a retirement account rather than spending it.

Not claiming your full employer match is a common mistake. Many companies that sponsor 401(k)s also match worker contributions to some degree.

Even if you can't max out your 401(k) for the year, try to contribute enough to snag your complete employer match. This will help your balance grow and give you the chance to invest your matching dollars to boost your balance even more.

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Hidden fees can sneak up on you and cost you money. If you're not paying attention, you might be losing hundreds of thousands of dollars over the course of your career.

A quarter-percent fee can reduce your 401(k) portfolio by over $100,000, and a half-percent fee can reduce it by another $100,000. That's a significant impact on your savings.

You can expect to pay administrative fees, which cover basic services like record-keeping and customer support. These fees are usually passed on to you.

Investment management fees are often the most significant, typically ranging from 0.5% to 1.5% of your assets. Actively managed accounts usually charge around 1%, while passive accounts charge less, around 0.5% or lower.

Individual service fees are unique to you, like fees for loans against your 401(k). Sometimes employers add special arrangements, and the costs are spread across all employees' investments.

Hidden fees can also come from the custodian in the form of trading or plan-specific fees. Sometimes, you pay extra to access a "special" fund, but it's essential to know what you're getting in return.

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You can check the fee disclosure statements carefully before making any investment in your retirement account. This will give you a clear picture of the fees you're paying.

Here are the three categories of fees you might encounter:

Your 401k's performance is a key factor in its growth rate. Don't settle for lackluster growth, take steps to assess and address any issues.

Comparing your 401k's performance to benchmarks like the S&P 500, NASDAQ, and Russell 2000 can help you understand if it's on track. For instance, if 60% of your portfolio is in large-cap stocks, you should aim for 60% of the S&P 500's return.

Index funds often charge significantly lower fees, around 0.1% to 0.3%, compared to actively managed funds. By switching to a lower-fee passive fund, you can increase your returns by paying less in fees.

Regular reviews of your 401k can help you catch any underperformance early on. You should review your fees, performance, and asset allocation to ensure your 401k is working for you.

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Staying on track with your 401(k) plan is crucial, even if it seems like it's not growing fast enough.

Don't stop contributing, even if you feel like you're not making progress quickly enough. Stick to your plan.

It's easy to get distracted by outside influences, but your goals should dictate how you invest, not what others think.

Reviewing your investments and financial plan periodically is a good idea, but make adjustments in the context of your end goal.

Distractions will come, but don't veer off course. Assess them as necessary, but stay focused on your plan.

Remember, investing isn't easy, and it's normal to want to see things move faster.

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Underperformance can sneak up on you, leaving your 401k stagnant for years. If you leave your money in an underperforming asset for five, 10, or 25 years, you'll really hurt your retirement.

You could be leaving hundreds of thousands of dollars on the table. A quick log-in, checking fees and allocations, and making a couple of small tweaks can make a huge difference.

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Time can work against you, but it can also work for you. If you invest for 30 years and have a certain performance, you won't have to invest as much money.

Starting early is key - you can invest as little as $5 a day and still reach a million-dollar retirement. However, if you start late, you'll have to contribute more.