After many years or rising returns, some investors of 401(k) will be reminded in their upcoming statements that investments in Wall Street do not always rise. While the S&P 500 is up over 8% this year there has been a big increase in volatility.
Despite the most recent upheaval in the stock market, the average 401(k) balance remains 50% higher over the past 5 years, which has led to more of a percentage of equities in a number of accounts, making them susceptible to risks in the market, according to a report by a major investment house.
The investors who might be taking the biggest risk are those that can least afford it, the Baby Boomers. The generation is just now approaching retirement age and has the least amount of time to make up lost money from when the market made its big downturn during the financial crisis.
The report shows that 11% of all investors between the ages of 50 and 54 were carrying 100% of their balances in their 401(k) in stocks. At the same time, 10% of those 55 to 59 had their full portfolio in different stocks.
Eighteen percent of those people aged 50 to 54 had stock allocation at 10% higher than was recommended, and the figure increases to as high as 27% for people 55 to 59 years of age.
Many investment houses recommend that people who are currently 55 to 59 should carry only 70% of their assets in stocks.
Legitimate reasons could be why some of the Baby Boomers are so heavily in stocks. A retiree who also has a pension plan might have the opportunity to take a few additional risks with his 401(k) investments.
In addition, people who know a sizable inheritance is due them might also think about taking more risks with retirement funds.
However, for a majority of investors having a 401(k) that is heavy in stocks could be placing their complete retirement at a big risk.
Because the stock market has gained so much over the past few years, many investors have not rebalanced their holdings, as most tend to have a tendency to leave it where it is and let it keep growing.