Time to check up on your investments

Now that some time has passed since the wrenching stock-market slide of last autumn, it's time to check up on your 401(k) investments.

You shouldn't assess your investments more than a couple of times a year—checking your portfolio daily can lead you to make decisions based on emotions rather than rational analysis. The first part of the checkup is getting over any money you lost. But don't be smug if you didn't lose money because you were conservatively invested. You might not be well positioned for what comes next. Here's what to do:

Control your emotions

You might be disappointed if you missed the big jump in stocks in early spring (gains that were later diminished). If you're looking to get back into the market now, bear in mind that there could be more volatility ahead. So buy in slowly, investing the same amount monthly over the next year or so. "If you decide to nudge up your equity stake by 5 percent, that's fine, but trying to swing for the fences is not what you want to do," says Christine Benz, director of personal finance at Morningstar.

Determine your allocation

How is your money spread among stocks, bonds, cash, and other assets? Your 401(k) sponsor might offer a tool to help you figure that out. Or you can use Morningstar's Instant X-Ray, which lets you enter your mutual funds, stocks, and cash to see how you're allocated. You can determine whether your allocation is appropriate and whether your performance or the fees you pay are above or below average. (To find the tool, go to www.morningstar.com, scroll down to Portfolio Tools, and click on Instant X-Ray.)

Diversification's reputation for mitigating risk took a hit during the market meltdown. Corporate bonds, real-estate funds, commodities, and foreign stocks were all supposed to help insulate from downturns in U.S. stocks but didn't work this time, though Treasury bonds and total-bond-market funds would have protected you. But long-term Treasuries have lost money so far in 2009 as inflation fears mount and the economy improves, which causes people to shift money out of Treasuries and back into stocks. Broad diversification among domestic and foreign stocks, bonds, commodities, and cash is still important to catch the upside.

Make age-appropriate picks

As you get closer to retirement, shift from a stock-heavy portfolio to a more bond-centric one. Your 401(k) provider might offer model portfolios to guide you. You can also find them at the Mutual Fund Education Alliance (www.mfea.com).

Some people prefer to leave the asset allocation to professionals by buying target-date funds, which adjust your investments based on your retirement year. Those funds have come under scrutiny in Congress for being, in some cases, far riskier than people expected. One, Oppenheimer Transition 2010 Fund, lost 41.3 percent last year. But target-date funds offered by Vanguard and T. Rowe Price are worth a look.

What to do next depends on your age:

Younger than 40

You can still afford to take the risks of being heavily invested in stocks. Seek out the economies with the best long-term prospects for growth, such as emerging markets China and Brazil, but expect a bumpy ride along the way. You should also keep a healthy dose of U.S. stocks. The compounding of returns over time will allow your portfolio to grow.

Preretirees

If you're between 40 and retirement, you can boost a flagging portfolio by saving more. Worried about tax rates going up? Put your retirement savings into a Roth IRA or Roth 401(k), if your employer offers one. With Roth plans, you invest after-tax money and take tax-free distributions in retirement.

Retirees

If you don't have a traditional pension, you might consider buying a fixed immediate annuity, which pays a monthly income for life, from a financially sound insurer. In a recent Consumer Reports Money Adviser report, USAA topped our list for payout and safety.

To protect against inflation, you might want to hold some stocks in retirement. You can also invest a portion of your portfolio, say 15 percent, in Treasury Inflation-Protected Securities, which rise with inflation. Buy them through a mutual fund such as Vanguard Inflation Protected Securities or an exchange-traded fund such as iShares Barclays TIPS Bond Fund.