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posted on 10 January 2017

The Real 401k Plan Manager 09 January 2017

Written by , Clarity Financial

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


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.

401k-PlanManager-AllocationShift

Started With A Bang

With the last holiday-shortened trading week behind us, and traders coming back to work in force on Monday, look for some selling next week. (Managers can take in gains and not pay taxes until 2018)

The last three years have seen some pretty decent corrective actions in January. However, when you have three years in a row of anything, the odds rise this year could be different. However, we don’t want to necessarily “bet on that" with our retirement money.

With buy signals on all three indicators registered currently, any corrections are likely to be somewhat limited back to the rising short to intermediate-term moving average. This would suggest a correction back to 2200 would likely be a “buyable" trading level. As noted in the chart above, the current extension above the moving average will likely be corrected in fairly short order and we can use that correction to rebalance allocation models for the beginning of this year.

As noted in the main body of this week’s missive, there are many statistical indications that make the current year ahead a coin flip as to outcomes. After 8-years of a cyclical bull market, excessive risk taking in portfolios is having diminished rates of return particularly given the extraction of liquidity by the Fed.

Use this current extension in the market to continue rebalancing portfolios following the guidelines detailed in previously.

Step 1) Clean Up Your Portfolio

  1. Tighten up stop-loss levels to current support levels for each position.

  2. Hedge portfolios against major market declines.

  3. Take profits in positions that have been big winners

  4. Sell laggards and losers

  5. Raise cash and rebalance portfolios to target weightings.

Step 2) Compare Your Portfolio Allocation To The Model Allocation.

  1. Determine areas requiring new or increased exposure.

  2. Determine how many shares need to be purchased to fill allocation requirements.

  3. Determine cash requirements to make purchases.

  4. Re-examine portfolio to rebalance and raise sufficient cash for requirements.

  5. Determine entry price levels for each new position.

  6. Determine “stop loss" levels for each position.

  7. Determine “sell/profit taking" levels for each position.

(Note: the primary rule of investing that should NEVER be broken is: “Never invest money without knowing where you are going to sell if you are wrong, and if you are right.")

Step 3) Have positions ready to execute accordingly given the proper market set up. In this case, we are looking for a correction to reduce the overbought condition of the market to allow for a better opportunity to rebalance equity risk.

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-ModelTarget-071616

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.

401k-Selection-List

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