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posted on 04 May 2016

40l-k Portfolio Planner 02 May 2016

Written by , Clarity Financial

The Real 401(k) Plan Manager - A Conservative Strategy For Long-Term Investors


NOTE: I have redesigned the 401k plan manager to accurately reflect the changes in the allocation model over time. I have overlaid the actual model changes on top of the indicators to reflect the timing of the changes relative to the signals.

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.


Now We Wait

Two weeks ago I discussed the breakout of the market above technical downtrend resistance at 2080 and the initiation of a technical "buy signal." With that, I increased the exposure to equities, reluctantly, in the 401k plan manager.

Over the past week, the market continues to struggle between resistance and support and is making little progress.

These is nothing to do now except to wait for either a breakout of the market to new all-time highs which would increase equity allocations further, or a breakdown below support reversing recent actions.

As we head into traditional summer weakness, the markets are at best a "coin flip" currently. While the "bulls" want you to believe the "only way is up" currently, the reality of a weak economic and fundamental backdrop suggests caution.

Since 401k plans have limits to switching funds to limit turnover, I continue to reiterate caution:

"With the technical damage to the market remaining over the intermediate and longer-term time frames, the reward of aggressively increasing allocations currently is still outweighed by the risk. So, any equity additions should be done with extreme caution and an "itchy trigger finger."

For longer-term investors, the markets have made virtually no progress since January of 2015. Therefore, there is little evidence to suggest stepping away from a more cautionary allocation...for now.

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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