How many investors entered September of 2008 with a heavy overweight in domestic equities? How many ignored their 401k's during the six month decline that followed? How many benefited as a result, over the last 5 months as equities have recovered (still 25% below the early September level and roughly 33% below the October 07 S&P peak)? How many moved to cash at some point during the decline and are still sitting in cash now?
Whether you "cashed-out" or stayed in equities, the asset allocation you had established 12 months ago is most certainly out of sorts now. Take time to review your allocation now and consider what it should be in light of the current market and economic environment. Also consider your risk tolerance - to what extent did the 9/08 to 3/09 decline clarify for you what your true risk tolerance is? If you went to all cash quickly, you probably have a much lower threshold than you thought.
Strive for true diversification - look for exposure globally rather than just domestic and ensure you have exposure to asset classes other than equities. Use the asset allocation tools on your plan provider's website and research the options available in your plan. Take advantage of the improvement in financial markets to reduce your risk (if you're still overweight equities) or to improve your return potential (if you're 100% cash). Going forward, try to revisit your 401k asset allocation quarterly and make changes as necessary.
