Your 401(k) Is Up. Don’t Let It Go to Your Head.

By Joe Pinsker Dec. 19, 2023 The Wall Street Journal

Checking your 401(k) is the feel-good move of the year.

After last week’s stock-market rally, it now feels safe to peek at your 401(k) balance again. That is a relief for the millions of people whose retirement accounts are still recovering from the bruising they took in 2022, when the S&P 500’s total return was -18.11%.

Vanguard’s 2030 target-date fund, which is geared to people retiring around that year, is up 14.50% in 2023 through Friday, according to FactSet. Its 2060 fund, which has a longer time horizon and more in equities, is up 18.21%. Those same funds were down 18.35% and 19.17% respectively in 2022.

Don’t let your self-worth balloon along with your net worth, financial advisers warn. They say the overconfidence that comes with making big gains can cause people to take bigger risks with their investments.

“With the S&P up more than 20%, you don’t have to be that smart to have made a lot of money” this year, said Scott Nations, an options trader and the author of a book about the psychology of investing. “It makes us feel like we’re savvier investors than we really are.”

Neuroscience backs up the idea of overconfidence being a problem. Increases in dopamine, a brain chemical that likely gets released when you see large returns in your account, can lead to more financial risk-taking, research on the brain has found.

You can still celebrate a little.

Some retirement savers have cheered the performance of their 401(k)s on social media, noting they look forward to hopefully getting to spend the money in coming decades.

The Federal Reserve’s forecast last week of three rate cuts in 2024 had an instant impact on this year’s returns. All three major stock indexes rose, with the Dow Jones Industrial Average ending the day up 512 points at a record close.

The average 401(k) balance at Fidelity Investments was $107,700 at the end of September, per the latest data from the firm. That marks an 11% year-over-year increase, even before the market’s fourth-quarter rally.

“What’s important is for people to not get attached to that number and feel like, ‘That’s mine—it belongs to me,’” said Suzanne Shu, a professor at Cornell SC Johnson College of Business. “The more you feel that ownership, the more painful it is if it falls again later.”

Don’t stare

Constantly logging into your retirement account whether it is up or down is both emotionally taxing and possibly harmful to your net worth, research indicates.

Behavioral economists Shlomo Benartzi and Richard Thaler found that investors with longtime horizons who followed the market more closely had lower returns, likely because observing market volatility made them more scared of stocks.

When stocks are up, it is dangerous to assume they will only keep climbing. Joe Goldgrab, an executive wealth-management adviser at TIAA, said he heard from several clients last week who were sitting on uninvested cash and told him they were finally ready to put it into the market.

He said he reminded his eager clients of the risks of buying high, and advised them to consider committing a smaller amount and doing so incrementally instead of all at once. (In the meantime, he said, they can stick it in a high-yield savings account.)

“I’m guilty of looking at my accounts and seeing how they’re doing and getting that rush of happiness,” Goldgrab added. “But I also have the discipline to say, ‘Hey, I’m not going to take money that was earmarked for another goal and suddenly put it into the stock market.”

Keep your 2023 gains in perspective, because people often overestimate how long a nest egg can last. That is in part because we are more used to thinking of our income and expenses on the scale of a month than lumped together over decades, said Hal Hershfield, a professor at UCLA’s Anderson School of Management.

“One danger in looking at that lump sum as it’s gotten bigger is the perception that it may afford more adequacy, satisfaction and purchasing power in retirement than it actually will,” he said.

An action plan

If you’re currently paying more attention to your retirement savings than you otherwise would, now is a good time to do some upkeep on your account, said Valerie Rivera, a financial planner and the founder of FirstGen Wealth in Chicago.

Rivera recommends making sure that the level of risk in your portfolio matches your life stage, buying or selling holdings to rebalance your allocations based on your investing plan and seeing if you can afford to bump up the amount you’re contributing with each paycheck. (She notes these are things you should be doing once or twice a year anyway.)

Rivera also advises looking into a Roth 401(k), which grows tax-free, and inspecting the fees that come with each of your investments. Try to stick to investments with an expense ratio of 0.5% or less, she said.

Tackling these to-do’s now, when you’re feeling better about your balance, might help establish a positive association with these financial chores that many people dislike or forget, Rivera said.

“Maybe the next time is summertime, and maybe you have your laptop in your yard while you have your feet in the pool and you’re having a beer,” she said.

Write to Joe Pinsker at

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