Your Portfolio May Be Growing, But Experts Say It Could Be Putting Your Retirement at Risk

Watching a portfolio rise can be reassuring, even if the pace of gains has cooled lately. After several years of strong stock market performance, many retirement savers are seeing account balances that are higher than expected. Still, that is precisely why some experts are sounding the alarm.

If you have been consistently contributing to a retirement plan, recent market gains may have shifted your portfolio more than you realize. According to Kiplinger, many investors who once built balanced portfolios may now hold far more stock exposure than they intended after years of equity outperformance, a mistake that can become more serious as retirement nears.

A balanced portfolio may not stay balanced on its own

Many investors set an allocation target and then rarely check it again.

For instance, someone who began with a standard 60% stock and 40% bond mix years ago may no longer be close to that split. As stocks outperform bonds, they naturally take up a bigger share of the portfolio even if the investor never buys more shares.

Over time, a 60/40 portfolio can quietly drift toward 70/30 or even beyond that. Whether intended or not, that change increases risk.

Good performance can bring hidden risks

This is one of investing's odd ironies. Weak markets are easy to spot because account values drop. Strong markets can be more dangerous because investors may assume everything is still aligned with their plan.

In reality, rising stock prices can gradually make a portfolio more aggressive than is suitable for a person's stage of life. That matters especially for people who expect to retire within the next five to 10 years.

Midterm years have often been volatile

The timing makes the warning more relevant. That does not mean the market will necessarily fall, but it does point to the possibility of volatility even in years that ultimately end with gains.

Using more than 75 years of historical data analyzed by Capital Group Private Client Services, stocks have tended to behave differently in midterm years. Returns during those periods have generally lagged, and volatility has been higher than in other years. Since 1950, however, the average one-year return after a midterm election has been a striking 15.4%, nearly double the average for a typical year.

Retirement changes how losses are felt

Market declines affect retirees differently from younger investors. Someone in their 30s who goes through a bear market still has decades to recover. Someone approaching retirement or already drawing income has far less room to wait it out.

This is commonly called sequence-of-returns risk. A major downturn near retirement can have an outsized effect because withdrawals may force investors to sell assets while prices are down. That is why keeping a portfolio properly balanced becomes more important as retirement approaches.

Rebalancing does not mean giving up on stocks

Some investors hear the word rebalancing and think it means selling every stock they own.

In fact, rebalancing simply means moving the portfolio back toward its intended mix. If stocks have grown to make up much more of the portfolio than planned, trimming some gains and shifting money into bonds, cash, or other more conservative assets can help restore the desired risk level.

The point is not to predict the market. The goal is to preserve the better plan you likely chose in the first place.

Small changes can help avoid larger problems later

Rebalancing can feel uncomfortable because it often means selling investments that have done well. That can seem backward. After all, why sell what is working?

But disciplined investing often requires exactly that. By reviewing allocations regularly and making modest changes, investors can avoid being heavily overexposed when market conditions shift. For retirees and those close to retirement, that review may be especially valuable.

The bottom line

Strong market gains have helped millions of Americans build retirement savings. But those same gains may also have quietly changed portfolio allocations, leaving some investors taking on more risk than they wanted.

The good news is that this issue is often fixable. Reviewing your current asset mix, comparing it with your original plan, and rebalancing when needed can help protect your financial health and keep your investments aligned with your retirement goals over the long term.