401(k): Safety in Allocation

Peaks and valleys of the market probably give you fits about your investments in retirement savings accounts. Nobody can tell when Wall Street’s ups will peak and its lows bottom out, but you can protect yourself with patience and a cool head.

Our firm’s 401(k)/403(b) services for corporate clients include helping their employees make informed decisions about investing in their employer’s retirement accounts. Following this year’s spring and summer downturns in the U.S. stock markets, I received several calls asking about “safe” 401(k) investment options for plan participants.  I’ve begun receiving similar calls following the market value changes in late September and early October.

Many callers feel uncomfortable about an apparent slide in account values; they want to protect their money. My first recommendation – to do nothing – is usually not what they want to hear.

Asset allocation

Why do I recommend leaving holdings alone as a safe strategy? Simple: asset allocation, which according to research affects 90% or more of your investment performance volatility.

If your portfolio encompasses different asset classes according to your individual comfort level or risk tolerance and your retirement time line, normal ups and downs of markets constitute no reason to change your investments. Even larger shifts in assets’ value don’t necessarily endanger your returns.

Change in circumstances

Many of these might indicate that you need to shift your asset allocation, such as aging to within the last five years before your retirement.

The closer you are to retirement, the less time you have for your investments to return to previous, higher values after a down market. Your mix of assets might need updating.

Stable value

Most employer plans offer a stable value or stable return fund – usually comprising bonds and sometimes wrapped with an insurance product to guarantee a minimum payout.

As their names imply, these investments maintain a fairly constant value for the money invested. The trade-off for this stability: a lack of any appreciable growth on that money. The truly risk-averse investor can consider these funds.

The majority of investors, though, shouldn’t make stable value or return funds a significant portion of an overall account.


A big problem with trying to use stable value funds as safe investments during market fluctuations, timing also becomes an issue when you change your investments based on short-term market conditions.

How long will any current downturn last? When will you feel safe to go back to your previous investment strategy? What happens if the markets respond to a correction with a run of new record highs and you remain in your supposedly safe position?

Buying or selling

Should you spend more time focused on the value of what you already own or on the price for what you are buying?

When corrections cut the value of your retirement account, consider keying in on the other side of the situation: The current price for new shares of your investments are likely lower now. Buy low.

If you set up the right asset allocation, the value of what you already own will return to its previous level as the markets return to theirs. More importantly, the shares you purchase in down markets begin adding value and returns much sooner.

Get help

Employers often offer one-on-one investment advice to every employee. Nearly every plan offers help with allocation choices, either via a customer service number or a Web-based planning tool.

You don’t have to figure out the best allocations on your own.

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Written by Tim Long, CFP, CRPC, a financial planner with Hutchinson Financial in Little Rock and Bentonville, Ark., and in Texarkana, Texas.

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