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By Penelope Wang
October 6, 2016

Q. A constant theme for retirement is to check your ratio of stocks and bonds to be sure you are on the right track. When I do that, should I be selling one and buying the other to balance, simply changing my future allocations for contributions, or both? —Joe Knippel

A. You’re definitely right to ask about your asset allocation, says Jarrett Solomon, director at Connecticut Wealth Management in Farmington, Conn. Keeping tabs on your stock-and-bond mix is essential to maintaining a risk level that you can live with, as well as ensuring that you are on track to earning the returns you need.

To maintain your asset allocation, it’s important to rebalance periodically, since market moves can throw it out of whack. If your stock allocation has grown from your intended 75% allocation to 85%, say, then shift enough money from your stocks to bonds to get back to your original target. In your 401(k) plan, you can generally do this with a few clicks on your plan website—some plans may offer a rebalancing tool. Or you can make a phone call to your plan provider.

How often should you rebalance? That’s a matter of debate among investing wonks, but generally less is more. “You’ll probably do best if you rebalance whenever your asset mix moves about 10% to 15% away from your target,” says Solomon. So if you aim to have 60% of your portfolio in stocks, you would sell some stock if the figure has risen to 66% to 69%—and buy more stock if a market tumble has pushed your exposure down to the 51%-54% range.

“For most investors, that will be necessary only every few years,” Solomon says. If you rebalance more frequently, you may end up hurting your returns, studies show. You may also run up trading costs and, if you’re saving in a taxable account, a tax bill as well.

Unfortunately, few investors bother to rebalance at all. If you let your stock allocations continue to grow, you may end up suffering big losses when you can least afford it. Back in 2007, just before the market meltdown, some 25% of 401(k) investors between the ages of 56 and 65 had more than 90% of their account balances in stocks, according to the Employee Benefit Research Institute. For these older investors, there may not have been enough time to get back to even before retirement.

That’s why it’s also important to gradually adjust your allocation to be more conservative. As a rule of thumb, subtract your age from 110 and keep that amount in stocks, Solomon suggests. So if you are 40, opt for a 70% stock allocation. But adjust this allocation based on your own financial goals and taste for risk.

Read next: 5 Smart 401(k) Moves to Make Now

So make sure to set a time each year to review your portfolio and decide whether you need to rebalance or make any allocation changes. The end of the year is an ideal time, or you can set another calendar date you’ll remember, such as your birthday or work anniversary.

Be sure to consider the big picture, including any portfolios you hold outside your retirement account, to make sure your overall investments match your allocation. If you need to adjust your asset mix in a taxable account, consider directing future contributions to funds that are lagging, to avoid a tax bite from moving money from your winning funds.

If you are concerned that you lack the time or expertise to manage your own portfolio, a target-date fund can be a great alternative—and most of them aren’t expensive, Solomon points out. With these funds, all the rebalancing and asset allocation changes will be done automatically. The Vanguard Target Retirement series, which is on our Money 50 list of recommended funds and ETFs, charges about 0.16%.

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