Now is a good time to check whether your 401(K) has too much in­vested in stocks.»

The Denver Post - - BUSINESS - By Stan Choe

Did you no­tice that your toe doesn’t hurt be­cause you didn’t stub it today?

We tend to pay the clos­est at­ten­tion to things when they’re going badly, and the same is true of the stock mar­ket. When stocks crashed dur­ing the fi­nan­cial cri­sis in 2008, phone lines for fi­nan­cial ad­vis­ers and 401(k) providers were jammed with pan­icky in­vestors. Now stocks are at record highs, and the mar­ket is tran­quil. It’s easy to feel com­fort­able leav­ing your ac­count on au­topi­lot.

Don’t get lulled into com­pla­cency. Stocks may have be­come an out­sized por­tion of your port­fo­lio fol­low­ing their ter­rific run.

And don’t let the quiet times fool you: Wild swings are part of the mar­ket’s DNA. Just ask in­vestors who weren’t pay­ing at­ten­tion a decade ago and let stocks build up in their 401(k) ac­counts as the S&P 500 set record af­ter record, only to see the in­dex get wiped in half by the Great Re­ces­sion from late 2007 into 2009.

“Now is a good time to check” whether too much of your 401(k) is in stocks, said Jeanne Thomp­son, a se­nior vice pres­i­dent at Fidelity In­vest­ments. “You don’t want to wait un­til the mar­ket tanks, be­cause by that point, it’s prob­a­bly bet­ter to ride it out.”

Fidelity says 40 per­cent of savers who are man­ag­ing their own 401(k) ac­counts without the help of pro­fes­sional guid­ance have a higher per­cent­age of their port­fo­lio in stocks than it rec­om­mends. That’s up from 38 per­cent a year ear­lier. Close to 9 per­cent of male in­vestors and 6 per­cent of fe­male in­vestors have their ac­counts en­tirely in stocks.

Find out how much of your port­fo­lio is in stocks and ask your­self how you’d re­act to a 10 per­cent drop in its value, some­thing that’s rel­a­tively com­mon. If your first re­ac­tion would be to sell — and lock in the losses — you may have too much of your port­fo­lio in stocks and not enough in bonds and other more sta­ble in­vest­ments.

Going back to 1950, in­vestors have had to deal with a pull­back of at least 10 per­cent in the S&P 500 in more than half the years, ac­cord­ing to Ryan Det­rick, se­nior mar­ket strate­gist for LPL Fi­nan­cial.

Bonds have risks, too, given their low yields and the Fed­eral Re­serve’s goal of slowly lift­ing in­ter­est rates higher. But fund man­agers say bonds still should con­tinue to be more sta­ble in price than stocks.

So what’s the right per­cent­age of stocks to hold? It depends on your age and how much risk you’re will­ing to stom­ach.

Peo­ple decades away from re­tire­ment have the lux­ury of wait­ing out any drops in the mar­ket. Sink­ing prices are help­ful to them, be­cause they make stocks cheaper to buy for any­one reg­u­larly con­tribut­ing to their 401(k) ac­counts.

Work­ers closer to re­tire­ment still need stocks — al­beit in smaller pro­por­tions — be­cause they have his­tor­i­cally pro­vided the high­est re­turns over the long term and a re­tire­ment can last decades.

It’s easy to see how much stock mu­tu­al­fund com­pa­nies rec­om­mend that re­tire­ment savers hold. Check their tar­get-date re­tire­ment funds, which are built to help in­vestors divvy up a nest egg over time.

For peo­ple 30 years away from re­tire­ment, the av­er­age tar­get-date re­tire­ment fund has nearly 88 per­cent of its port­fo­lio in a mix of U.S. and for­eign stocks, ac­cord­ing to a re­cent re­view by Morn­ingstar. For those 20 years away from re­tire­ment, they keep 79 per­cent, and the per­cent­age drops again to 61 per­cent for work­ers hop­ing to re­tire in a decade.

An­a­lysts and pro­fes­sional in­vestors dis­agree on where the stock mar­ket is headed. It could keep climb­ing as prof­its for com­pa­nies con­tinue to in­crease due to an im­prov­ing global econ­omy, and as in­fla­tion re­mains low. But stocks are also pricier, raising their risk. In ad­di­tion, the Fed­eral Re­serve is slowly pulling the plug on the stim­u­lus it has pumped into the econ­omy since the Great Re­ces­sion.

Re­gard­less, make sure that you’d be com­fort­able with a 10 per­cent move, up or down, in the stock por­tion of your 401(k). In the mean­time, watch your toes.

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