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posted on 24 April 2017

The Real 401k Plan Manager 24 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

Sell Signal Alert-2 Approaches

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, failed at the retest, spun off an initial “alert" sell signal and is now threatening to issue a secondary “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. As I noted last week:

“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."

Importantly, if the secondary “signal" is issued, then the market will catch up with the allocation model putting us back on the “right side" of the trade. The market must rally next week and rise above the 50-dma to keep that secondary signal from being issued.

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.

As noted above, we did take profits out of bond holdings last week and rebalanced back to targets. The fall in rates, as expected, has gotten a bit overdone. We are looking for a retracement in rates, which would be coincident with a market rally, back toward the 2.4% area. Refrain from adding further fixed income holdings, for now, take some profits from overweight holdings, 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.

401k-Selection-List

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