posted on 20 September 2016
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.
This past week certainly got investors attention. After a month of doing "nothing," the "something" evolved to a whipsaw of emotions all week.
Don't worry. It's probably not over yet.
Over the past several weeks, I have continued to suggest reviewing portfolios, reducing risk, rebalancing and preparing for "whatever comes next." That advice paid off this week by increasing cash allocations and reducing volatility in portfolios. If you haven't done anything yet, I would continue to suggest on any bounce early next week take some action to clean up allocations by:
As I stated last week, we are on the lookout for one of two outcomes of the current pullback/correction:
In the chart above, the first "warning" signal has been triggered which suggest more weakness in the week ahead. Furthermore, I noted a couple of weeks ago that the deviation above the short-term moving average could not, and would not last long. That has now happened.
See, technical analysis is completely full of ****.
Very likely, depending on what happens over the next week, we will be able to make a determination as to what actions to take next. The markets are currently waiting, once again, for the next Fed meeting to get confirmation the Fed will NOT raise rates before the election.
The two biggest risks to the markets in the short-term are the Fed and the election. Once we clear those two hurdles we should have a much clearer view into the end of the year.
No one knows for sure where markets are headed in the next week, much less the next month, quarter, year, or five years. What we do know is that not managing risk in portfolios to hedge against something going wrong is far more detrimental to the achievement of long-term investment goals due to the inability to recover the "time" lost getting back to even.
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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