For years, investors have been told repeatedly that putting their money in stocks would give them the best chance at reaching their financial goals. And even if you feel like it's nuts to put more money into the market, it's the right course to maximize your long-term returns.

Not getting it done
Nevertheless, as you'd probably expect, investors aren't in any hurry to act crazy. A recent study from Hewitt Associates looked at how workers have their 401(k) plans invested. For the first time since the company started doing the survey back in 1997, employees had less than 50% of their plan balances invested in stocks as of the end of February.

But that news isn't as bad as it sounds. In all likelihood, all the survey really shows is that workers don't pay as much attention to their 401(k) plans as they should.

Given how much the market has fallen in the past two years, even some of the most aggressive 401(k) investors have likely seen their stock allocations go down in comparison to their bond and cash holdings. As an example, say your 401(k) offered a stock fund that owned equal shares of the top 10 S&P 500 companies. If you invested $6,000 in that fund two years ago and $4,000 in a long-term Treasury bond ETF, here's what your initial 60/40 split would look like today:

Stock

2-Year Total Return

Original $600 Now Worth ...

ExxonMobil (NYSE:XOM)

(14.1%)

$516

General Electric (NYSE:GE)

(63.5%)

$219

Citigroup

(93.5%)

$39

AT&T (NYSE:T)

(28.4%)

$430

Microsoft (NASDAQ:MSFT)

(28.1%)

$431

Bank of America

(79.8%)

$121

Procter & Gamble (NYSE:PG)

(17.4%)

$496

Altria (NYSE:MO)

(11.9%)

$529

Pfizer (NYSE:PFE)

(44.2%)

$335

AIG

(97.9%)

$13

Source: SEC Edgar website, Yahoo! Finance. Initial holdings represent top S&P components as of March 31, 2007. Return is 4/24/07 through 4/24/09.

The value of those stocks would now add up to $3,128. Meanwhile, the $4,000 you invested in bonds would have grown to $4,871, making your total allocation about 39% stocks and 61% bonds -- without you having done a single thing.

Getting taken by surprise
Of course, after the market has already dropped, you might feel like that lower stock exposure is exactly the right thing for you now. And that's true -- as long as the stock market stays low.

But the problem is that a lower allocation to stocks leaves you ill-prepared for any recovery that may come in the future. For instance, since the end of February when the survey results were taken, the S&P 500 has risen about 18%. If you were underallocated to stocks back then, you didn't take full advantage of the bounce-back.

Unfortunately, many people wait to rebalance until after stocks have already risen like this. That doesn't just make them miss out on those short-term gains -- it also means they'll have less money in stocks than they would have if they'd rebalanced before stocks bounced.

What to do
As tough as it is to do, the time you should be most interested in getting back into stocks is when it seems like only a crazy person would buy them. By waiting until the time everyone thinks it's safe to get back into the market, you'll have already missed out on sizable gains -- and it may well be time for stocks to correct again.

On the other hand, that doesn't mean you should put off rebalancing if you didn't catch the March lows. Just as you can't time the market with your investments, trying to time your rebalancing is ultimately a hopeless cause. But even if you don't have perfect timing, you'll still get the lion's share of benefits from rebalancing.

The fact that many investors are down on stocks right now is actually a good reason for you to be more optimistic. When stocks recover, those fair-weather investors will be back to buy -- and if you've beaten them to the punch, you're the one who'll profit from their herd mentality.

For more on smart stock investing, read about:

Frustrated with your 401(k)? Even if your employer's plan isn't the greatest, you don't have to give up your dreams of a happy retirement. Get the tips you need to turn your retirement savings around in our special report, "How To Make The Most of Your 401(k)" -- just click here for instant free access.

Fool contributor Dan Caplinger isn't giving up on stocks anytime soon. He owns shares of General Electric and Altria. Microsoft and Pfizer are Motley Fool Inside Value recommendations. Procter & Gamble is a Income Investor selection. The Fool owns shares of Procter & Gamble. Try any of our Foolish newsletters today, free for 30 days. Don't give up on the Fool's disclosure policy; it's there for you.