So you’ve made the smart choice to save for retirement with an IRA. You’ve read about how your contributions now can grow to support you later in retirement. But when you check your statement, you’re left with a shocking sight— a balance that has only grown by mere pennies! Your savings wouldn’t be enough to support you now, much less decades down the road.
So where did things go wrong?
The bad news: Your IRA growth could be stalling for a number of reasons. The good news: whatever the issue, there are ways to get it back on track.
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6 Reasons Why Your IRA Isn’t Growing and How to Fix It
The following are six common reasons why your IRA might not be growing at the pace you had hoped for.
1. The market is down.
To understand how the market affects an IRA, it’s important to know what, exactly, an IRA is.
An IRA is not a type of investment in and of itself— it’s simply a trust account that holds investment assets and receives special tax treatment. Within an IRA, many types of investments are allowed, including stocks, bonds, real estate, annuities, mutual funds, and exchange-traded funds.
The overall goal of these investments is to earn money on what you contribute through share value increases, interest, and dividends. For instance, stock investments usually grow over time— historically 8% to 12% per year. But the value of these investments fluctuate daily.
If you find yourself in a market downturn, your investments will likely follow suit. You’ll probably notice that your IRA is not growing at the pace it once was, or the value of your account may have even dropped.
How to Fix It
Unfortunately, there isn’t anything that you can do to help poor market conditions. However, there are some things you can do to make sure that you don’t lose money in the long haul:
- Work with a financial advisor to diversify your portfolio appropriately
- Invest according to your risk tolerance and time horizon
- Don’t panic and withdraw your money early
The good news is that the market will eventually correct. We’ll mention it a few times in this article, but it’s a piece of advice that bears repeating: A financial advisor can be an enormous help in helping your investment withstand market downturns and meet your retirement savings goals.
2. You aren’t contributing enough.
Saving for retirement isn’t a one-time thing. If you make a few contributions here and there and expect it to grow to an amount that can support you in retirement, you are going to be disappointed. The more money that you contribute to your IRA, the more opportunity there is to earn on your investment.
This is why it is important to contribute the maximum amount possible to your IRA each and every year. In 2022, the annual contribution limit is $6,000 (or $7,000 if you’re 50 or older).
How to Correct the Problem
Of course, it’s easy to say “just contribute more to your IRA”, but this can be difficult if you don’t have a plan. Start by setting up automatic transfers to your investment account every time you get a paycheck. Even if it’s a small amount— say, $100 a month— it will be better than sporadic, inconsistent contributions. It’ll start to add up before you know it!
3. Your portfolio is too conservative.
One of the keys to investing is finding an investment strategy that matches your risk tolerance.
An aggressive portfolio is more volatile— meaning it moves with the ebbs and flows of the market— but also comes with a higher earning potential.
On the other hand, if your portfolio is conservative, it means you’ve invested in assets that are low-risk, but typically have a lower earning potential. Examples of conservative investments include high-quality bonds, money markets, and cash equivalents.
How to Fix It
So what’s the right combination to maximize your growth and minimize your risk? It depends on many factors, including your time horizon. For instance, if you’re young and decades away from retirement, financial experts usually recommend investing more aggressively. If you’re just a year or two away, an expert might suggest a more moderate or conservative approach. If you aren’t sure what type of portfolio is right for you, a financial advisor will be able to help put you on the right track.
4. Your portfolio is nonexistent.
This is one of the most common issues with IRAs that aren’t growing. Depending on your investment broker or provider, you may have to manually invest the funds in your IRA—it’s not always an automatic process. If your IRA account hasn’t been increasing beyond your contributions, chances are you aren’t investing the funds.
How to Fix It
This is a simple one: talk to your broker or provider. They’ll be able to help you take the necessary steps to have your funds invested.
5. The fees on your account are too high.
Unfortunately, investing in an IRA isn’t always free. You may encounter monthly account maintenance fees, trading fees, commissions, and more. Sometimes, the investments themselves come with fees. For instance, if you’ve invested in a mutual fund, you are likely paying a set expense ratio or being charged a fee everytime a trade is made.
Usually, the growth outweighs all of these fees, but if you aren’t careful, they can eat away at your account earnings.
How to Fix It
Always understand what fees you're paying to keep your account running. If you have a financial advisor, make sure you know what their fee structure is. If you see that your expenses are high, it may be time to move your money to a different provider or investment type.
6. You’re trying to do it yourself.
Typically, IRAs are managed by an investment firm, broker, or bank. However, some people opt for something called a self-directed IRA. SDIRAs are a variation of traditional and Roth IRAs. The main difference is who has control over the account and the type of investments available.
With an SDIRA, account custodians (i.e. investment firms) are prohibited from giving financial or investment advice or managing assets. This leaves the account holder in charge of research, due diligence, and choosing the right investments. SDIRAs also offer a wider range of investment options.
Many financial experts warn against SDIRAs due to their risks. In fact, most household financial brokerage names won’t even offer SDIRAs. Without any professional advice, investors may be prone to making poor investment decisions, paying higher fees, and even potentially getting scammed.
How to Fix It
If you have a self-directed IRA and aren’t happy with its performance, consider rolling your IRA over to a traditional IRA that is managed by a registered investment advisor. A professional advisor will be able to help you assess your goals and craft your investment portfolio to match.
The Bottom Line
If your IRA isn’t seeing growth, don’t panic. Take a look at your account and ask if one of these issues is the culprit. From there, you can work to find a solution. If you find yourself outside of your comfort zone, don’t be afraid to enlist the help of a financial planner or professional investment advisor.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer Member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Before deciding whether to retain assets in an employer-sponsored plan or rollover to an IRA an investor should consider various factors including but not limited to: investment options, fees and expenses, services, withdrawal penalties, protection from creditors and legal judgments, required minimum distributions and possession of employer stock. Before you elect to open an IRA account and engage your investment representative, please review all account statements and disclosure documents related to the IRA and services to be provided under a new relationship and consult with a qualified tax advisor as needed. If transferring an existing retirement plan into an IRA, you should be aware that (i) Those assets will no longer be subject to the protections of ERISA (if applicable) (ii) depending on the investments and services selected for the IRA, you may pay more or less in transaction costs than when the assets are in the Plan, (iii) if you are between the age of 55 and 59 ½, you would lose the ability to potentially take penalty-free withdrawals from the plan, (iv) if you continue working past age 70 ½ and transferred your plan assets to a new employer’s plan, you would not be subject to required minimum distribution and (v) withdrawing assets directly would be subject to federal and applicable state and local taxes and possibly be subject to the IRS penalty of 10% if under age 59 ½.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.