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

Asset drift can turn your 401(k) plan into a complete stranger when you're not looking. That's why you must keep an eye on it.

Dramatic success of oil and drilling companies, for example, may have so bloated any funds benefiting from that area that your retirement portfolio could be vulnerable to a downturn.

The same could be said for midcap funds, which have left their large-cap counterparts in the dust. The sharp difference between booming telecom and declining housing is another indication that financial markets don't treat all investments equally.

Check the percentage breakdown of your retirement portfolio periodically to see if it is still in keeping with your original goals and mix of fund types. Cut back whatever areas have exceeded their initial percentage and use the proceeds to build up positions that have become smaller due to price declines, experts said.

"People must take a hard look at their 401(k) investments, preferably twice a year," said Curt Weil, certified financial planner with the Lasecke Weil Wealth Advisory Group LLC in Palo Alto, Calif., and a board member of the Financial Planning Association. "Right now, I would trim back small-cap value and large-cap value funds — but not get out of them — because they've already had a seven-year run."

Instead, start buying small- and large-cap growth funds because they haven't done as well and are less expensive, Weil said.

The only investments he might overweight in a portfolio are those that would be adversely affected by taxes if they were outside a 401(k), such as corporate bonds, he said. Weil is against holding individual stocks in a tax-favored account because it doesn't provide the losses to go with gains that make taxable-stock investing effective.

"Much of what you invest in is determined by your employer's 401(k) plan, and each person also has different investment values," said Angela Thomson, certified financial planner and principal with Coastal Financial Planning Inc. in Lincoln, R.I. "But you still must make the best of what is available."

She said intermediate-term bond funds are more attractive than short- or long-term funds this year as a middle ground in dealing with uncertain interest rates. Whenever natural resources funds are available in a plan, she recommends that her clients keep 10 percent in them. Health care and utilities also are sectors she is emphasizing in retirement plans this year.