By Bill Hudson

MINNEAPOLIS (WCCO) — If you’re like the majority of working Americans, you likely have an employer-sponsored 401(k) retirement account.

401(k)’s have largely replaced the conventionally defined benefit pension plan as a worker’s main source of retirement income.

“Young people need to put money away in a 401(k). There’s no if’s and’s or but’s about it,” investor Karen Woodson said.

And with the stock market posting yet another record, as the Dow Jones industrial average surpassed the 25,000 mark Thursday, the nearly nine-year run of the bulls is fattening people’s portfolios.

However, that good fortune is also causing investment strategies out of whack. Rising markets have rapidly inflated allocation targets, making many unsuspecting investors uncomfortable.

“I thought it would be better to balance it out a little bit better,” said Vicki Hiemstra, who just had her accounts rebalanced. “I’m kind of in that 10 to 15 years before I retire. I wanted to make sure I was right where I needed to be.”

Vicki made sure her 401(k) got rebalanced when she last visited with her investment adviser.

“At a minimum you want to rebalance once a year, so if you haven’t looked at it and haven’t done anything about it, yes you should,” wealth advisor Nicole Middendorf said.

Middendorf runs Prosperwell Financial in Plymouth and explains why rebalancing is essential for long-term financial success.

Let’s assume your goal is 60 percent in stocks and 40 percent in more secure bonds. The huge climb in equities means your stock funds now represent about 75 percent of your portfolio, while the more stable bonds have shrunk to just 25 percent of your total investment.

Should there be a sudden and significant drop in stock prices, you would stand to lose much more of your overall portfolio. That’s why financial advisers urge clients to take a portion of their gains off the table and transfer that money into more stable funds.

“The first thing is to look at how much risk can you take and how much really you can afford to lose or potentially gain,” Middendorf said.

Middendorf suggests it’s not uncommon to rebalance on a more regular basis, even quarterly. Most 401(k) accounts can be set for automatic allocation, for greater peace of mind.

“You just wonder if it is that quick to go up, then it’s that quick to go down, that’s the worrisome part of it,” said Woodson, who holds a 401(k) account herself.

As for where the market’s headed – Middendorf feels the new tax law will further fuel corporate profits, driving stocks higher for the next two years.


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