Feeling good about the stock market rally?

Apparently, a lot of people are. Pessimism about the stock markets is at the lowest level since the bullish days of 2007, according to Bloomberg.

It's not too hard to understand why: For some, it seems like things are finally looking up.

But for many, it doesn't seem like the rally has done much for their retirement portfolios. If you look at the two-year performance of some of the popular stock mutual funds, it's not hard to see why:


Recent Top Holdings

2-Year Total Return

Fidelity Magellan (FMAGX)

Corning (NYSE:GLW), Nokia (NYSE:NOK)


Dodge & Cox Stock (DODGX)

Hewlett-Packard (NYSE:HPQ), Wells Fargo (NYSE:WFC), Merck (NYSE:MRK)


Fidelity Capital Appreciation (FDCAX)

Morgan Stanley (NYSE:MS), Sprint Nextel (NYSE:S)


Source: Yahoo! Finance.

In our enthusiasm about how things have improved since March, it's easy to forget that the bull market peak was almost two years ago, way back in October 2007. And it's easy for those whose retirement portfolios are still down to feel like they're in trouble, or that their retirement hopes are in jeopardy.

Am I describing you?

Don't make these rash moves
If you're approaching retirement and your nest egg is still looking a lot smaller than you'd hoped, it can be tempting to shake things up in a big way, whether to boost your returns for a year or two or to preserve your remaining savings at all costs. There are many good things you can do to improve your position -- but there are also a few rash moves that can lead to trouble. Like these:

Rash move 1: Taking crazy investment risks
Ever think of trying to "make it all back" with one great strategy? A huge investment in a silver ETF, for instance, or trying your hand at day trading, or taking outsized positions in a few speculative small caps, or even dumping all of your 401(k) into your employer's stock? These are all highly risky strategies.

Remember what "risk" means? It means there's a chance of loss.

If you're within 10 years or so of retirement, or already retired, taking big risks isn't a good plan: Should things go wrong, you could take big losses. And then you'll have even more lost ground to make up -- and you don't have time for that.

Rash move 2: Buying a variable annuity
The idea of an assured income for the rest of your life can be awfully tempting, especially if your nest egg is running short. But a variable annuity isn't a good way to get it. Too many variable annuities have huge fees and, increasingly, iffy guarantees. Your friendly neighborhood financial advisor may be hot to tout their advantages, but that could be due to the huge commissions annuities often pay to the pros who sell them. If the idea of an annuity interests you, take a look at lifetime income annuities instead. A good one can be solid, cost-effective insurance against outliving your money.

Rash move 3: Staying in cash
After the beatings our portfolios have taken in the last year, it's tempting to cut your losses and just sit in cash for the duration, isn't it? But yes, that's also a rash move. Staying in cash will preserve your existing assets, but it denies you a chance for the growth that could help you make up lost ground.

Despite last year's market swoon, the stock market is still the best source of long-term investment growth for most people. As a general rule of thumb, any money you're not going to need for seven years should probably be in stocks. Most of the rest should be in bonds, with only the money you're likely to need in the next year (and/or your emergency fund) in cash or "cash equivalents" like a money market fund or short-term CD.

It's really not too late to save your retirement
No matter your age or position, there are still things you can do to improve your chances of a secure retirement. But rash moves like these are likely to make things worse, not better. Investing carefully, taking advantage of asset allocation, and getting help when you need it are far better approaches -- and likely to bring you better returns (and let you sleep easier) over time.

If you'd like to learn more about the most effective approaches to retirement repair, check out the Fool's Rule Your Retirement service. It's full of great strategies and information to help you get the most from what you have. Try it free for 30 days, with our compliments.

Fool contributor John Rosevear has no position in the companies mentioned. Nokia and Sprint Nextel are Motley Fool Inside Value recommendations. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.