When the government backs a bank via the FDIC, they are saying “If you have $50,000 in your account, we will make sure you are able to get your $50,000 even if the bank goes bankrupt. You will get exactly what you own, no more, no less.”
When you have a 401K, the account may have an equivalent value in dollars listed, but what you actually own are shares in companies. During a crisis, there is a risk that a company will go bankrupt or lose significant value. The government will also make sure you have access to exactly what you own, even if what you own is ten thousand shares of a bankrupt company.
401Ks are not the types of investments certified by the government – you are thinking about standard checking and savings accounts. While they may be _run_ by banks (or other financial management companies) they are really investment accounts at their core. 401ks invest in various stocks and bonds to grow your money, and those investments are not protected from losses.
Investments in stocks go up and down in value. Protections mean your account can’t just go “poof!” because a bank fails, but there is no guarantee about the value of the assets you own within your account.
Often, people panic during financial crises and sell when stocks go down, realizing the losses. If they would just sit tight, and even buy into the dip, they’ll come out ahead when the markets eventually go back up.
A 401k is set up and invested into whatever YOU choose, so when your 401k takes a loss, it means your investment took a loss. Generally, an advisor would recommend you diversify your investment, or pick an index fund that does this for you.
Target date funds (TDF) are typically what’s recommended, depending on your age, where the investment changes with time, as it approaches the target date. The date could be the year you’ll be retiring by.
You are confused between checking/saving account vs investment. 401k is an account where money in there goes to investment, and you can choose what kind of investment you can buy in your 401k account. It can be extremely risk free (aka fixed income) or very risky (stocks). And obviously the risky ones could lose money.
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