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posted on 17 March 2016

The Real 401k Plan Manager 14 March 2016

by Lance Roberts, Clarity Financial

We frequently find ourselves in places where having a strict investment discipline is tested. When markets rally strongly, the inclination by most is to ignore their discipline and chase markets. During bullish trending markets, such lapses in discipline are forgiven by steadily rising markets. However, during bear markets, such deviations are often brutally punished.


There are 4-steps to allocation changes based on 25% reduction increments. As noted in the chart above a 100% allocation level is equal to 60% stocks. I never advocate being 100% out of the market as it is far too difficult to reverse course when the market changes from a negative to a positive trend. Emotions keep us from taking the correct action.



While the market rally was quite exceptional over the last couple of weeks, it has done little to change the currently negative market trends back to positive. As shown in the 401k portfolio manager chart above, all sell signals remain in place currently, and while they improved slightly over the last two weeks, remain in the negative.

However, as I stated last week:

"...some event (exogenous, monetary or fiscal) could occur which would render such analysis incorrect. If such an event occurs, we will re-evaluate holdings and readjust accordingly."

That event was the ECB last week which gave a modest boost to stocks on Friday. The Federal Reserve is now up on deck as we head into the end of the month, which could either provide a further lift or a sharp decline.

As discussed throughout the entirety of this week's missive, the technical damage to the market remains over the intermediate and longer-term time frames. This suggests the reward is still outweighed by risk and continues to suggest a more cautionary allocation.

Therefore, I reiterate last week's note:

"With portfolio allocations now reduced to TARGET levels, the only action to currently take is NOTHING. We are now in the position to just WAIT and allow the market to TELL us what it wants to do next.

While many will speculate on a resumption of a "bull market" in the short-term, the RISK of being WRONG far outweighs the possibility that such prognostications are correct."

Portfolio management is not difficult, it is just a function of letting the markets tell you what it wants to do, rather than "hoping and guessing" at what YOU want it to do.

You are not in control. When you learn to accept that, managing your money becomes vastly easier.

If you need help after reading the alert; don't hesitate to contact me.

Current 401-k Allocation Model

The 401k plan allocation plan below follows the K.I.S.S. principal. By keeping the allocation extremely simplified it allows for better control of the allocation and a closer tracking to the benchmark objective over time. (If you want to make it more complicated you can, however, statistics show that simply adding more funds does not increase performance to any great degree.)


401k Choice Matching List

The list below shows sample 401k plan funds for each major category. In reality, the majority of funds all track their indices fairly closely. Therefore, if you don't see your exact fund listed, look for a fund that is similar in nature.


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