Rebalancing a 401(k) that you've ignored

I began contributing to my employer's 401(k) plan years ago but haven't looked at it since, except to check the current balance. I know I should do more to make sure the plan's on target. What should I consider?

At least once each year it's wise to review your asset allocation-the ratio of stocks to bonds and the amounts in different asset classes (such as small-company stocks, large company stocks, international investments, long-term versus short-term bonds) within those broad categories. Make sure you're still comfortable with the overall distribution. Maybe you originally decided to keep 80 percent of your assets in stocks, for instance, but now that you're closer to retirement you'd prefer a 60-40 split.

Once you're comfortable that the overall plan is appropriate for you, make sure the holdings in your 401(k) actually match it. If your goal is to keep 60 percent of your portfolio in stocks but because of market growth spurts those now make up 75 percent of your holdings, you'll need to transfer some shares from your equity funds into bond funds or other offerings to restore your desired balance.

Send your money management questions to: MMQA Editor, Medical Economics, 123 Tice Blvd., Woodcliff Lake, NJ 07677-7664, or send an e-mail to memoney@advanstar.com (please include your regular postal address).