Big market swings might make retirement investors want to act fast. But with a 401(k), the key question isn’t what the market will do next—it’s whether your portfolio has drifted from your target mix and needs review. Rebalancing keeps your investments aligned with your goals; it’s not about predicting the market.
This difference matters for anyone saving for the long term. Some investments grow faster than others, which can shift your portfolio away from your goals and change its risk level. Market ups and downs can shift your mix away from your plan, sometimes making you take more—or less—risk than you intended. A big market swing just makes those changes easier to spot, so it’s important to use these moments to realign with your long-term plan.
Why market movement can change portfolio risk
Most 401(k)s are built around a mix of stock funds, bond funds, cash, and other options, chosen to match your time horizon, risk tolerance, and savings goals. When one section of the market rises or falls much more than another, your actual investment mix can drift away from your target—even if you haven’t touched your account.
For example, your portfolio might move from 60% to 80% stocks after a rally, or from 70/30 stocks/bonds to 76/24. If you adjust for 5-point shifts, this could trigger action. These numbers just show risk shifting as markets move.
This works the other way, too. If stocks drop sharply but your safer investments don’t, your account might become more conservative than you meant. The key question isn’t whether the market has hit bottom. It’s whether your current mix still fits your long-term plan.
A review trigger is not a trading signal.
A big move in the market is a good reason to review your 401(k), but reviewing does not mean you must make changes right away. It can be tempting to act during volatile times, but experts warn against reacting too quickly or trying to time the market. Rebalancing is about reviewing your plan and acting only when needed.
That’s why the word “review” matters. Reviewing your account means checking if you’re still on track, not automatically making changes. A review can confirm your contributions are fixing imbalances or show that a target-date fund or managed account is handling rebalancing for you. It may also reveal if your goals or risk tolerance have changed, which is a separate discussion from immediate portfolio rebalancing.
Practical ways to define “significant.”
There’s no single rule for what counts as a significant market move, but several common review methods can help guide you.
Review on a regular schedule, such as every six or twelve months.
Check if any investments have grown or shrunk past a set percentage for rebalancing.
Regularly check your mix and rebalance only if it’s moved outside a set range, like more than 5 percentage points from your target.
Decide in advance how and when you’ll review your account. This makes you less likely to react to market headlines or volatility.
What to check during a rebalancing review
A rebalancing review doesn’t have to be complicated, but it should always keep your long-term goals in mind. Compare your current 401(k) mix to your target, including all your funds and options. Also, check if your future contributions support your desired mix over time.
The features your plan offers also matter. Some 401(k)s have automatic rebalancing, target-date funds, or managed account options that handle a lot of the work for you. If you use one of these, your review is about making sure that option still fits your goals, rather than adjusting each fund yourself.
Don’t forget about costs and restrictions. Even though most 401(k) trades don’t trigger taxes right away, it’s still smart to check for any fees, trading limits, or plan rules before you make changes.
Keeping the focus on the plan
Rebalancing can feel strange, because it sometimes means selling investments that have done well and buying ones that haven’t. That can be hard—especially when recent results stir up strong feelings.
But the point isn’t to guess which investments will do best next—it’s to keep your risk level aligned with your long-term retirement goals. A big market move is just a reminder to check your mix and refocus on your plan. Your decisions should always be rooted in your long-term needs—not headlines.
Bottom line
A big move in the market can be a good reason to check your 401(k), especially if your account now looks different from your plan. Your reviews should follow a process focused on your long-term goals, not a prediction. By setting a schedule or tolerance band—or both—you can make rebalancing a disciplined, long-term risk management tool rather than a reaction to the market.
If you’re not sure whether your 401(k) mix still fits, a financial advisor can help you look at your account alongside your other savings, debt, cash, and income needs. That big-picture view can show whether you need to rebalance, whether future contributions can help fix things, or whether it’s time to update your investment targets.
Source URLs
· https://www.investor.gov/introduction-investing/getting-started/asset-allocation
This material is provided for informational and educational purposes only and should not be construed as personalized investment, tax, legal, or retirement plan advice. The information does not constitute a recommendation to buy, sell, hold, or rebalance any security, fund, asset class, or investment strategy. Rebalancing does not assure a profit or protect against loss in declining markets. Investment decisions should be based on an investor’s goals, risk tolerance, time horizon, financial circumstances, and the specific rules and options available within the investor’s retirement plan. Past performance is not indicative of future results. Investors should consult their financial advisor, tax professional, or retirement plan representative before making changes to a 401(k) account or other investment portfolio.
Recent Articles
Let's talk about your future.
Connect with a local Duncan Williams Asset Management advisor
5350 Poplar Ave.
Suite 600
Memphis, TN 38119
