Did Your 401(k) Balance Go Up By More or Less Than Average in 2025?

Last year was another good one for the stock market and for generating retirement income. The Standard & Poor's 500 index finished 2025 up nearly 18% when dividends are included. It was the third consecutive year of big gains for the index.

However, some investors likely lagged that return, while others topped it. Fees, asset-allocation choices, and when you buy shares can all impact performance. Here are some reasons your own portfolio might have lagged — or topped — the S&P 500.

It was an especially bad - or good - year for your investment mix

While it's true that the S&P 500 index had a strong year in 2025, your returns were likely even better if you invested in European stocks.

As of early January, the one-year return on Vanguard's FTSE Europe ETF topped 35%, trouncing the S&P during that period.

On the other hand, Vanguard's Small-Cap Growth ETF only had a return of 8.5% during the same timeframe, significantly underperforming the S&P 500.

The lesson is that your investment mix helps determine whether you topped broader stock market performance or fell short of it.

Risk scares you, so you put more money into bonds

Very few investors put all of their money into stocks. The vast majority of us divide our money up into a number of other types of investments, including stocks, bonds, real estate, and cryptocurrency.

Such diversification can be wise, but it will hamper your returns in years when stocks do especially well.

For example, if you are a cautious investor who only puts 60% of your dollars into stocks and the remaining 40% into bonds, your return in 2025 certainly would have been less than if you had put 100% of your money into an S&P 500 index fund.

Your 401(k) investment options were limited

Historically, many 401(k) plans have offered a limited number of investment options to workers enrolled in such plans.

If your company plan does not offer an index fund that tracks the S&P 500, there is a chance you underperformed the index.

On the other hand, not having access to such an index fund might have been a blessing if you were forced to choose an alternative that actually beat the S&P 500 in 2025.

Fees and expenses reduced your return

Fees and other expenses also reduce your overall return, which can be another factor in why some people lag the indexes. For example, your 401(k) plan may include fees such as:

• Plan administration fees
• Investment fees
• Individual service fees

Over time, these fees can wreak havoc with your ability to build a big nest egg.

The U.S. Department of Labor notes that over a 35-year period, someone who starts with an account balance of $25,000 and averages an annual return of 7% will end up with $227,000 if fees and expenses average 0.5% annually.

However, if your fees and expenses are 1.5%, your account will only grow to $163,000 over the same period.

Your portfolio was skewed toward cryptocurrency

More people are investing in cryptocurrency than ever before. Bitcoin had a volatile year in 2025, reaching record highs last fall before crashing at the end of the year.

Bitcoin has continued to struggle in 2026, while the strong 2025 finish for stocks has carried over into the new year.

Things tend to change in a hurry for cryptocurrency, but those who were tilted toward crypto in 2025 may have ended up trailing market averages.

You sold stock during the April swoon

Last April, the stock market went through one of its periodic plunges. Soon after President Donald Trump announced the implementation of tariff policies, markets cratered.

If the sharp decline left you panicked and you sold stock, you likely ended up behind market averages by the end of the year. Stocks soon recovered from their April lows and steamed ahead, closing near record highs at the end of 2025.

However, if you were not in the market during that period, you missed out on such gains.

You tried to time the market

Both 2023 and 2024 were terrific years for the market. But two years of outsized performance left some investors frightened that 2025 was going to be a year of a stock market correction.

Others fretted throughout 2025 that a recession might be looming, and that a downturn in the economy would take the stock market with it.

If you were one of those folks, you might have pulled back and failed to invest at all in the market last year. Or perhaps you sold a chunk of your stock investments early in the year so you could stay safe as you waited for the storm clouds to pass.

Of course, in hindsight, those would have been lousy decisions, as 2025 was another great year for stocks. If you tried to time the market, odds are good that your returns were not as robust as those who stayed invested.

Bottom line

Even if your returns trailed those of the stock market overall in 2025, it doesn't necessarily mean you did anything wrong. Many experts recommend diversifying your portfolio to protect you in the event that the stock market crashes.

But while diversification can protect you during bad times, it can harm your returns during good periods. That is simply the price you pay for protecting your bottom line.

If you are unsure of the right mix for your investments, consult with a financial advisor who can give you advice on your own retirement plan.

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