When to Rebalance Your 401K
07/23/2010 0 comments
When it comes to 401(k) plans, savvy investors know that asset allocation is crucial. But without regular checkups, over time your investments can drift away from that initial allocation. Most experts recommend plan participants rebalance their 401(k)s periodically – generally, at least once a year.
Rebalancing means adjusting the allocations to the funds in your account back to their original targets with your ideal mix of stocks, bonds and cash. But the majority of plan participants practice a form of benign neglect: About 85% of participants make no asset allocation changes during the year.
What types of events should act as a potential trigger to rebalance your 401(k) plan? Here are a few:
Big market movements
Too much company stock
Life event
If plan choices change
Proximity to retirement
An investor within five years of retiring should be careful not to let his or her 401(k) plan get too heavily weighted toward equities. If the market fell, they would incur greater losses, and they don’t have time to make up the losses and might have to work longer, says Kohmann.
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