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posted on 04 April 2017

The Real 401k Plan Manager, 04 April 2017

Written by , Clarity Financial

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


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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

Resuming The Trump Trade?

As I have been writing over the last few weeks, the 401k model needs to be adjusted up to 100% equity allocation. We still have a couple of the seasonally strong months of the year left ahead of us, and as noted above, the bullish trend remains intact.

Given the current consolidation in the market over the last couple of weeks, and the current risk/reward setup as noted above, the incremental increase in exposure simply has not been justifiable given the limitations that exist in 401k plans. However, we may be nearing an opportunity to get the allocation realigned with the underlying signals soon.

As noted in the 401k-chart above, the current extension above the moving average has started to correct. The buy signals are beginning to contract and the deviation above the long-term average is being reduced. As long as the correction process is confined to a bullish trend, a short-term buy signal will allow for an increase in the model exposure.

WARNING: If you do not pay close attention to your 401-k plan, or are just more conservative, there is a substantial possibility that any increase in the model allocation could be reversed within a fairly short time frame.

As I noted last week, the bounce did occur on the pivot of Wall Street assuming the failure to pass healthcare reform is now a “good thing." The instruction remains this week to reduce any underperforming assets in your portfolio.

I did note two weeks ago, the run-up in interest rates HAD put bonds into a favorable position to add exposure in portfolios. That suggestion played out very favorably but with rates now back to short-term overbought condition, refrain from adding further fixed income holdings until the market bounces.

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.

401k-Selection-List

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