Even investors who didn't panic and cash out investments last fall need to go back and take a look now.
"By doing nothing, their asset allocation has changed dramatically," said Pam Hess, the director of retirement research at Hewitt Associates, a human-resources consulting firm.
While participants in 401k plans continued to save the past several months, the percentage of investments in stocks dropped to 50% by the end of 2008 compared with 68% at the end of 2007 because of lower share values and movement out of stocks, Hess said.
The volatility this year has caused more switching, but most investors haven't readjusted portfolios, according to a survey released in July by Charles Schwab. The report found that only 39% of investors have made changes to allocations since the stock market began to decline.
The research also found that only 31% of mutual-fund owners spoke with a broker or financial adviser on a regular basis. Worse, 36% don't know what mutual funds they own.
Having too little in stocks now means missing out on a recovery.
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You need to update your plan
Stuart Ritter, a financial adviser at T. Rowe Price Group in Baltimore, said everyone needs an updated plan that is based on, among other things, a person's financial goals, time horizon and risk tolerance."People need a plan that will work through good markets and bad markets," he said. "They don't want to veer off the road every time they hit a speed bump."
He said T. Rowe Price recommends a diversified portfolio that varies depending on an investor's age and other factors. Of the portion in stocks, his company recommends 60% be in large U.S. companies, 20% in midsize and small U.S. companies and 20% in international -- developed and emerging-market -- firms. It also recommends that 70% of bonds be investment grade, 20% high yield and 10% international.
Cash won't carry you through
Bryan Place, a financial adviser near Syracuse, N.Y., said many new clients are arriving with portfolios heavily weighted in cash and questions about when and how to enter the market.He compares them with a deer in the headlights. "You don't know which direction to go (with your investments), so you freeze," he said.
Video: 401k contributions on the rise
He said one way to switch back into the market is to put new 401k investments into more aggressive funds.
Tom Orecchio, a financial adviser in Old Tappan, N.J., also is encouraging clients to consider not only risk tolerance and long-term plans but whether they have adequate cash. He recommends several months of income in case of a job loss or, if already in retirement, a few years of cash.
This article was reported by Jilian Mincer for The Wall Street Journal.
