Q. I’m 24, and I’ve been investing in a target-date fund in my 401(k). I’ve lost a lot of money and have been reading that it’s good to rebalance everything in the 401(k) after losing money. Does that apply to target-date funds?

That’s the beauty of target-date funds. You plop all your 401(k) money into a single mutual fund and let the manager handle everything else for you. The manager’s job is to select a mixture of stock and bond funds geared specifically to a person like you, with a plan to retire in a particular year.

So if you plan to retire in 2050, you probably selected a target date fund with the number 2050 in its name. And the manager of that fund probably has invested about 80 or 90 percent of your money in stocks so that your money grows a lot when the stock market goes up. The remaining 20 or 10 percent would be in bonds, a safer but usually slower-growing investment.

But some people use target-date funds incorrectly. They put money into stock mutual funds and bond mutual funds in addition to their target-date fund. If you do that, the combination of stocks and bonds that you have might not be appropriate. And if that’s the case, you would need to examine your mixture of stocks and bonds and rebalance — that is, adjust how much money you are keeping in each of your funds so the blend is sensible for your age.

After the type of stock market crash we have had, you probably lost a lot in stock funds and made some money in bond funds. So you would rebalance by moving some money out of bonds and into the stock funds.

This might sound crazy now. But the thinking behind rebalancing is that there are cycles in the stock market. Although stock funds have been an awful investment since October 2007, with time — and no one knows when — they will be attractive. By rebalancing, the young investor positions money in funds that eventually should do better when the cycle turns.

The practice of rebalancing is based on an assumption that many investors miss: that it’s a mistake to just pick stock and bond funds that look good without any sense of how they fit into an overall plan. Rather, when you invest, you are supposed to think first about how certain combinations of stocks and bonds have grown over time. And then you set up your mixture of stocks and bonds in a way that history suggests should work over the time you have for investing.

You can get a sense for this by using one of the many asset allocation tools on the Internet, such as ipers.org/calcs/AssetAllocator.html.

Let’s take the example of a 24-year-old. A financial adviser might suggest keeping 80 percent of retirement savings in stocks and 20 percent in bonds. The reason: A young investor can afford to lose money in a shocking crash like we have had, and then benefit from the stronger growth in stocks over many years in the future. Since the 1920s, the stock market has climbed 9.4 percent a year on average, while long-term government bonds have risen 5.5 percent.

Of course, averages are just that. Sometimes the market soars 40 percent a year, and lately we saw that stocks could fall 40 percent in a year. But the ups and downs have averaged out to a 9.4 percent annual gain.

Knowing this history, investing professionals feel comfortable putting 24-year-olds heavily into stocks, while an appropriate mixture for a person close to retirement might be closer to 50 percent stocks and 50 percent bonds. Rebalancing keeps the age-appropriate mixture in place.

Here’s how rebalancing works: Let’s say before the market downturn, you had $1,000 invested for retirement and you followed an asset allocation model that showed people in their 20s should put 80 percent of their 401(k) in stocks — or $800 — and 20 percent, or $200, in bonds. Since the market started to crash, you did nothing with the money. So you may have only $690 left — $480 in stock mutual funds and $210 in bond mutual funds. Your money is no longer divided up 80 percent in stocks and 20 percent in bonds. Rather, now the combination is about 70-30.

So it’s time to rebalance to your original 80-20 plan. There are two options: Move money from a bond fund into stock funds, or temporarily change your 401(k) contributions so they all go into stock funds. At the point when you have restored your intended 80-20 mixture, rebalancing would be done.

Gail MarksJarvis is a Your Money columnist. Contact her at gmarksjarvis@tribune.com.