Written by Lance Roberts, Clarity Financial
The Real 401k Plan Manager – A Conservative Strategy For Long-Term Investors
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.
Buy Signal Approaches (But Will It Stick?)
While the market rally was quite exceptional over the last few weeks, it has done little to change the currently negative market trends back to positive. As shown in the 401k portfolio manager chart above, all sell signals remain in place currently with the exception of the short-term “ALERT” indicator. This initial signal suggests that we begin to watch for “confirmation” of a turn in the markets back to positive.
However, as I stated over a month ago:
“…some event (exogenous, monetary or fiscal) could occur which would render such analysis incorrect. If such an event occurs, we will re-evaluate holdings and readjust accordingly.”
Those events were the ECB’s unleashing of their “QE Bazooka” combined with the Fed’s failure to hike interest rates, and ultra-accommodative language gave a boost to stocks for the month.
With those “supports” now in the rear-view mirror, the attention of the markets will now turn to economics and earnings. The problem here is that neither one is supportive of higher asset prices.
I suspect the current “bullish action” will likely fail as we head into the summer months. With the technical damage to the market remaining over the intermediate and longer-term time frames, the reward of aggressively increasing allocations currently is still outweighed by the risk.
For longer-term investors, the markets have made virtually no progress since January of 2015. Therefore, there is little evidence to suggest stepping away from a more cautionary allocation…for now.
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.
