Your Portfolio Is Probably Up, But Experts Warn That Could Be Setting You Up for a Rough Retirement

Seeing your portfolio grow feels good. After several years of strong stock market performance, many retirement savers are looking at account balances that are larger than they expected. But that's exactly why some experts are concerned.

If you've been diligently contributing to a retirement plan, recent gains may have quietly changed your portfolio more than you may realize. According to Kiplinger, many investors who originally built balanced portfolios may now be carrying significantly more stock exposure than intended after years of equity outperformance.

The risk isn't necessarily today's market. It's what happens if tomorrow looks very different.

A balanced portfolio may no longer be balanced

Many investors establish a target allocation and then rarely revisit it.

For example, someone who started with a traditional 60% stock and 40% bond portfolio several years ago may no longer be anywhere close to that allocation. As stocks outperform bonds, they naturally become a larger percentage of the portfolio even if the investor never buys additional shares.

Over time, a 60/40 portfolio can quietly drift toward 70/30 or potentially more. That shift increases risk whether the investor intended it or not.

Success can create its own problems

This is one of investing's stranger ironies. Poor market performance is easy to notice because account balances fall. Strong market performance can create hidden risks because investors often assume everything is working exactly as planned.

In reality, rising stock prices can gradually make a portfolio more aggressive than appropriate for someone's stage of life. That's particularly important for investors who expect to retire within the next five to 10 years.

Midterm election years have historically been volatile

The timing makes the issue more relevant. That doesn't mean the market will necessarily fall in 2026, but it does highlight the potential for volatility even during years that ultimately finish with positive returns.

Based on 90 years of historical data analyzed by Capital Group Private Client Services, stocks tend to behave much differently during midterm years. Market returns during these years tend to lag significantly, and there tends to be more market volatility compared with other years. However, since 1950, the average one-year return following a midterm election is generally a staggering 15.4% — that's almost double the average return in a typical year.

Retirement can change how market losses may feel

A market decline affects retirees differently from younger investors. Someone in their 30s who experiences a bear market still has decades to recover. But someone preparing to retire soon or already taking withdrawals has much less flexibility.

This is generally known as sequence-of-returns risk. A major downturn near retirement can have a disproportionate effect because withdrawals may force investors to sell assets while prices are depressed. That's why portfolio balance becomes increasingly important as retirement approaches.

Rebalancing doesn't mean abandoning stocks entirely

Some investors hear "rebalance" and may assume it means selling all their stocks.

However, rebalancing simply means bringing your portfolio back toward its intended allocation. If stocks have grown to represent a much larger share of your holdings than originally planned, trimming some gains and reallocating to bonds, cash, or other more conservative assets can help restore the desired risk profile.

The goal isn't predicting the market; instead, it's maintaining the better strategy you likely chose in the first place.

Small adjustments today may prevent bigger problems later

One reason rebalancing feels difficult is that it often requires selling investments that have performed well. That can feel counterintuitive. After all, why sell something that's working?

Yet disciplined investing frequently means doing exactly that. By periodically reviewing allocations and making modest adjustments, investors can avoid finding themselves dramatically overexposed when market conditions eventually change. For many retirees and near-retirees, that review process may be especially worthwhile in 2026.

Bottom line

Strong market returns have helped millions of Americans grow their retirement savings. But those same gains may have quietly altered portfolio allocations, leaving some investors carrying considerably more risk than they intended.

The good news is that this problem is often fixable. Taking time to review your current asset allocation, compare it with your original strategy, and rebalance when necessary can help protect the progress you've already made and keep your investments aligned with your retirement goals over the long term.

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