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posted on 24 January 2017

The Real 401k Plan Manager 23 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

Inauguration Behind Us

Well, fortunately, the inauguration of Donald Trump went off without any significant complications. With that all now behind us, as stated above, the markets will return their focus to earnings, economic data and policy actions coming from the White House. Trump has stated that his “executive order pen" will be working hard over the next couple of weeks so volatility in the markets remains a risk.

As I stated two weeks ago:

“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 averages. 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."

That still remains the plan for the moment, however, I would NOT be surprised for the markets to have a “relief rally" next week and make a push for “Dow 20,000."

As noted in the main body of this week’s missive, the current extremes on many fronts suggest investment risk remains elevated which is why I have not increased the allocation model to 100% as of yet. This is also why I have suggested over the last couple of weeks to use this current advance, and extension, as an opportunity to clean up portfolios. (Use guidelines noted previously.)

  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.

If we can get a correction that resolves the overbought, extended and excessively bullish backdrop to the markets currently, I WILL increase the allocation model to 100%. For now, we will wait and let the markets tell us what it wants to do next.

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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