Why Your 401(k) Investments Are Doing Well But Your Account Isn’t

Why Your 401(k) Investments Are Up—But Your Account Balance Isn’t

Ever looked at your 401(k) investment performance and thought, “These returns look solid… so why isn’t my account growing like I expected?”

You’re not alone. Many business owners and employees focus on 401(k) investment returns but overlook investor returns. And that gap can cost you big time.

Let’s take a look at how investors might perform differently from the investments they choose, why that performance gap happens, and what can be done to make sure employees are getting as much as possible out of their investments.

Investment Returns vs. Investor Returns

• Investment returns = how well a fund performs over time, in specific reference to how much it grows or does not.
• Investor returns = how much your actual account grows

They sound similar, but they’re often very different.

Why? Because investor behavior—when and how people move their money—can drag down results. Many employers will be surprised to learn that if you compare those investor returns to the baseline investment returns, the numbers are typically quite different over longer time periods. Even if a fund performs well, investors might not see those gains if they buy and sell at the wrong times.

Check the quality of your fund lineup with our Fund Lineup Checklist.

The Cost of a 2% Mistake

Let’s say an employee starts with $30,000 in their 401(k).

• At 8% growth, they’ll have $301,879 after 30 years.
• At 6% growth, they’ll only have $172,304.

That 2% difference nearly cuts their retirement savings in half.

Why the Gap Happens

The reason for this performance gap is investor behavior. It’s all about timing—and emotion.

Employees often:

• Chase “top-performing” funds based on past results
• React to news headlines (Tariffs, interest rates, global conflicts etc.)
• Panic during market drops and sell low
• Jump into hot funds and buy high

This behavior leads to poor timing and missed growth.

But history doesn’t necessarily indicate future performance—in fact it usually doesn’t. Of 641 top quartile performing funds in 2014, only 7.3% were still top performing just two years later.¹ Investors who had selected a top-performing fund in 2014 might feel disappointed today. When they see investments aren’t performing as well as they’d like, they decide it is time to make an investment change, so they put their money into other “top-performing” funds.

Regardless of why people choose to change their investments, the research shows that too many people are buying high and selling low. If an investor simply holds on to a good mix of investments, they’ll do better over time than a reactionary investor who is always tinkering with their investments.

How to Help Employees Get Better Returns

The key? Support and education.

Most employees don’t get help with their 401(k). In fact, about 28% of Americans say they lack confidence in their financial knowledge skills.² Without support, they chase performance and make emotional decisions. Employees should follow a goals-based approach to investing, instead of buying and selling their investments based on the market at any random point in time.

What Employers Can Do

• Offer one-on-one investment guidance
• Provide financial education sessions
• Encourage goal-based investing
• Choose a provider that helps, not just sells funds

The Bottom Line

If your retirement goals haven’t changed, your investments probably shouldn’t either.

Helping employees stay focused and avoid emotional decisions can close the gap between investment returns and investor returns—and lead to stronger retirement outcomes.

Let’s Talk

A proactive retirement advisor plays a key role in the success of your plan. We’re here to help you and your employees navigate the complexities of investing for your future. Contact us to discuss what your business needs.

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