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posted on 18 December 2017

The Real 401K Plan Manager 17 December 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

Tax Reform Pushes Markets To Unseen Levels

As stated last week:

“The surge last week keeps the ‘bulls in the driver’s seat’ which keeps portfolio allocations at target levels for now."

Such remains the case this week, but as noted in the 401k allocation chart above, we are now at the top of the long-term bullish trend channel. As noted by the arrows, with the markets extremely overbought and extended, it suggests there is little upside from here.

Importantly, note the orange horizontal lines I have added in the two bottom buy/sell signal indicators. The market has never been this overbought since I began tracking our model in 2006. (Just for the record, it hasn’t been this overbought since the turn of the century when I began running this model in the newsletter.)

This analysis remains consistent with an early-2018 tax selling correction in January. Such a correction would likely be confined to a pullback to the 200-dma, but could evolve into something larger depending on other macro-conditions.

Given the inability to hedge 401k-plans, I continue to recommended rebalancing risks in portfolios by trimming overweight equity exposure but adding to fixed income exposure.

Such actions will likely provide dividends as we move into the next couple of weeks as well as mutual funds ramp up capital gains distributions for the year. A pick up in volatility into the end of the year would not be surprising.

All NEW contributions to plans should currently be adjusted to cash or cash equivalents like a stable value fund, short-duration bond fund or retirement reserves. We will use these funds opportunistically to add to weightings when corrections occur.

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. principle. 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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