Nimble investors should adjust their 401(k)s to ensure performance

"Don't overlap your assets, which is particularly a problem for middle-aged and near-retirement workers who may have changed jobs and still have money in 401(k) plans or rollover IRAs elsewhere," Thomson said. "I consistently see workers overly invested in the same asset classes, such as small-caps, but just under different fund names, while missing out on international or mid-cap funds altogether."

A big-picture approach must consider all of your assets.

"Look not only at your 401(k), but at all the money you will have set aside for retirement so that you can gain strategic perspective," said Stuart Ritter, certified financial planner with T. Rowe Price Investment Services Inc. in Baltimore.

Ritter said diversity means a mix of large-cap, mid-cap, small-cap and international stocks, while bonds should include some that are investment-grade, high-yield and international. Ideally, your company's 401(k) should offer you an opportunity to invest in all segments of the market so that you can accomplish diversity. If your employer doesn't, raise the issue.

T. Rowe Price uses a formula to determine appropriate asset allocation: Take 110 minus your age, then multiply that number by 1.25.

That indicates a 35-year-old should want 94 percent of retirement money in diversified stocks, Ritter said. When the individual reaches 50 it decreases to 75 percent. At 65 it slides to 56 percent in diversified stocks.

"Yes, at 65 you should still have 56 percent in stocks because your retirement can last 30 years and anything you want to buy will continue to go up in price," Ritter said. "Growth must stay up with your needs."

Too often a 401(k) investor with four investment choices simply stashes 25 percent into each without considering their specific roles, Weil said. Younger people shouldn't necessarily put 25 percent each into money-market and conservative bond funds, because they need more growth in their portfolios.

A growing alternative within 401(k) plans is the target-date mutual fund that aims toward a specific retirement year and adjusts your asset mix as you approach that date.

"The most significant 401(k) investment trend is rapid emergence of target mutual funds, which take rebalancing responsibility out of investor hands," said Ted Benna, president of the 401(k) Association and chief operating officer of Malvern Benefits Corp. in Williamsport, Pa. "If these are available in your plan, now is a good time to ask yourself whether you should use them or continue to run investments on your own."

At issue is whether all investors aiming toward a specific year really fit so easily within the same investment group.

"The only problem with target funds is that they are a 'one-size-fits-all' solution, which may not be appropriate for everyone due to their special situations," said Dominic Falaschetti, mutual fund research analyst with Mesirow Financial Holdings Inc. in Chicago. "For example, they may be perfectly appropriate for someone who is already well-funded for retirement, but not for someone who isn't as well-funded."

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Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, P.O. Box 874702, Tempe, AZ 85287-4702, or by e-mail at andrewinv@aol.com.