Is Now a Good Time to Rebalance a 401(k)?

The Wall Street Journal reported that workplace retirement plans, including 401(k)s, have lost $2 trillion over the past 15 months. With so much economic uncertainty surrounding equities, we asked a panel of Fool analysts: Is now a good time to rebalance a 401(k)? Here's what they had to say.

Robert Brokamp: At this point, rebalancing would only matter if you held bonds or cash; rebalancing among the different types of equities wouldn't make much of a difference, since everything is down.

As someone who does hold some bonds and cash, I will tell you what I'm going to do. In a couple of weeks, I am going to be buying more stocks. This isn't a market call. In fact, you won't find a single expert who thinks the economy isn't going to get worse, and stay rough for a year or two. But I'm confident that, years from now in retirement, I'll look back at this period as one of the best times to invest more, not less.

Tim Hanson: It's a fabulous time to do that. Generally, sectors cycle in and out of being cheap. Today, everything is cheap. So, you're not paying any premium prices to perfect your portfolio. We've been telling our Global Gains members that if you were afraid to pay up to own China, now's the time you want to sell some domestic exposure to get some China exposure. If you own China, get some energy. Basically, take advantage of this enormous sell-off to move from what you have to what you need.

James Early: Probably, but I'd stick with whatever rebalancing system and interval I had in place before the crash. Now is when your long-term frameworks really help you.

Andy Cross: Now is a good time to stick to your financial plan, or develop it if you don't have one. And then stick to it. After all, the benefit of having a plan is that it gives you roadmap to saving for your retirement. That may mean rebalancing once or twice a year, or when you think your 401(k) distribution has gotten out of whack. Just make sure you watch your transaction fees. So know your goals and your risk tolerance, develop your plan and then hold your feet to the fire to stick to it.

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  • Report this Comment On October 10, 2008, at 5:28 PM, jettrey wrote:

    Funny. Before the crash I was just starting to think I needed to rebalance my portfolio to more cash & bonds. Luckily I did a little (but no where near as much as I wish I had). Meanwhile, the market rebalanced for me, so I guess now I need to rebalance back the other way - if I have the guts.

    That raises an interesting question though. What happens with those allocation mutual funds like Fidelity 2020? Are they doing the same thing now and rebalancing out of short term and into equity? Does the risk management you thought you had disappear because they shift money out of cash and into equities even as the market falls?

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