Cents and Sensibility
Cents and Sensibility
Is it time to rebalance
your 401(k) holdingsYou probably cast your ballot this past Tuesday for a new Hawaii governor or congressperson. You might also want to participate in a different type of election -- the choice of investments for your 401(k).
Your 401(k)'s holdings may be out of balance with your desired asset allocation -- the mix of investments that reflects your goals, risk tolerance and time horizon. And it may have gotten "unbalanced" without you having done anything.
During periods of significant market fluctuations, your allocation percentages can change -- a lot. For example, during the long bull market of the 1990s, the equity portion of your 401(k) may have grown to such levels that your portfolio was taking on a higher level of risk than you were comfortable with. You may well have recognized this; if so, you may have rebalanced your portfolio by shifting some assets out of equities and into other areas.
Now, though, the situation is reversed. Within your overall portfolio, the value of stocks may be down, while the value of bonds may be up. Over the short term, you might not mind having a greater exposure to bonds while the market is so turbulent. but over the long term, stocks have historically outperformed bonds -- and every other financial asset, too. Remember that past performance is no guarantee of future results. So, if your 401(k) is heavy with bonds or other fixed-income investments, your progress toward your retirement goals could be slowed.
Consequently, you may want to consider adjusting the percentages of your stock and bond investments within your 401(k). You may find it hard to put more money into stocks when the market is volatile. But when you invest in a 401(k), you are dollar-cost averaging -- putting the same amount of money into the same investments, at regular intervals. While this strategy can't guarantee a profit or prevent a loss, you buy more shares when the price is low, and fewer shares when the price is high.
Over time, this technique can reduce your overall cost of investing. And when the market turns around, all those low-priced shares you bought can be worth more.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com