A 401(k) retirement plan is one of the most popular ways to save money for retirement and score some tax breaks for doing so. But often these plans don't provide a lot of guidance on how to manage them, and participants end up with wildly aggressive portfolios or a portfolio so conservative that it barely budges year after year.
When experts speak of being aggressive, they generally mean how much of your assets are in stocks or stock funds.
To reduce risk, investors can add more bond funds to their portfolio or even hold some CDs.
But many workers make the opposite mistake: not investing aggressively enough. If you have more than five years until retirement, and certainly if you have 10 or more, you can afford to be more aggressive.
If you think your portfolio might be too aggressive, here are some signs to look for.
1. Your account balance fluctuates a lot
It can be exciting to see your balance run up quickly, but it's important to realize that this could be an effect of a 401(k) that's invested too heavily in stock funds and not enough in safer alternatives. Fast gains from stock performance "will feel great when things are going up, but that investor needs to be prepared to see some significant paper losses when we experience a downturn,"
said Matthew Trujillo, CFP at Center for Financial Planning in Southfield, Mich.