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posted on 11 July 2017

The Real 401k Plan Manager 10 July 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

Weaker Markets Push 2nd Sell Signal

As noted in the pie charts above, there are 4-signals that drive the portfolio allocation model. The first is a warning sign, the 2nd, 3rd and 4th, driving reductions in the equity allocation to reduce risk in 401k plans. We run this model much more conservatively than our client models due to investment selection and trading restrictions.

After another week of “up and down," the markets continue to tread in a very tight trading range. The lack of forward motion keeps models on hold this week as internal deterioration continues, but more importantly, has pushed the 2nd “sell signal" close to triggering. Given that models currently remain with a higher level of cash, this will not require any further action at this time. But given the signal is potentially being triggered at a very high level, it is worth paying attention to.

As opposed to our portfolio model allocations, where we have more flexibility in movement, we look for opportunities to adjust risk exposure with a view of a 90-day holding period. (This is due to 401k trading restrictions. If we cannot get comfortable with a 90-day outlook, we will remain on hold.)

Opportunity Arises: As I penned last week:

“After weeks of refraining from adding further fixed income holdings, and taking profits, the pop in interest rates will provide an entry point potentially in the next week or so. Stay tuned. “

As noted in the main body of the missive above, we are looking to start nibbling at adding bond exposure to portfolios. Bond allocations can now be rebalanced toward full allocations but do so incrementally as rates rise toward our target range of 2.4-2.5%.

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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