posted on 17 April 2017
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.
Sell Signal Alert 1
The consolidation in the market over the last few weeks - failed.
As I had noted over the last month, I was looking for an opportunity to move allocations back to the 100% allocation target but the risk/reward dynamic for such a move had not been favorable.
This past week, as detailed in the main missive above, the market broke through support at the 50-dma and spun off an initial “alert" sell signal. As such, all allocation adjustments remain on hold until the market correction is completed or reversed.
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.
Importantly, the “warning" signal is just that…a warning. As long as the correction process is confined to a bullish trend, a reversal of the corrective action will allow for an increase in the model exposure. But that time is not now.
Maintain cash, rebalance portfolio allocations and reduce risk. If the economic data continues its string of weakness, geopolitical tensions continue to mount or some other exogenous issue impacts the market in the short-term, you will be thankful for the extra cushion.
I did note a few 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 for now but maintain exposures.
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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