1986 W100 Power Ram 4x4

Months ago, whilst trying to track down a sound in my front end I popped the dust cap off one of the front axle hubs. I noticed a snap ring installed in a groove on the splined shaft, out in no-man's land not really retaining anything. I then noticed a second groove deeper in the hub with no snap ring in it. I moved the snap ring to the second groove, thinking it was the source of my clunking noise, and put everything back together. Weeks later, I discovered some brake parts were the source of the noise, but forgot all about the snap ring.

The 4x4 system is automatically engaged/disengaged from moving the stick in the cab (vacuum controlled?). It appeared to work before, and seems to work now too.

Which way is right? Why on earth is there two grooves? The previous owner(s) have had the suspension all apart, so the original position can't be trusted. I have not looked at the other side yet.