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posted on 01 June 2016

The 401k Plan Manager 30 May 2016

Written by , Clarity Financial

The Real 401k 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.


Markets Rally To Resistance

As discussed in the main section of the newsletter, the short-term dynamics improved last week as "Fed Speak" pushed money back into equities. Importantly, that push higher in the markets was on extremely light volume and failed to break above meaningful resistance.

Therefore, there are no changes to the 401k model this week as risk/reward is still not balanced enough to justify taking on additional model risk.

The strategy from three week's ago remains salient this week as well:

"While our intermediate-term buy signals are in place, we must wait for a breakout of the markets to new highs before increasing the allocation model further. If such occurs, the model will quickly move in steps back to full equity allocations. Currently, however, the risk/reward ratio does not warrant a further increase at this time.

Therefore, we continue to wait for either a breakout of the market to new all-time highs, or a breakdown below support reversing recent actions. I will admit remaining trapped in 'limbo' is emotionally trying - but this is where investors typically make the biggest mistakes by trying to 'guess' at what the market will do next. We are better off to wait and let it 'tell' us."

I try and remain very sensitive to making changes to the model since many 401k plans have limits to switching funds.

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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