Written by Lance Roberts, Clarity Financial
NOTE: I have redesigned the 401k plan manager to accurately reflect the changes in the allocation model over time. I have overlaid the actual model changes on top of the indicators to reflect the timing of the changes relative to the signals.
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.
“Bre-lief”
As discussed in the main section of the newsletter, the surprise “Brexit” last Thursday sent the markets plunging on Friday. While “bulls” were sent scrambling for cover, the overweight cash and fixed income holdings protected 401k plans reduced volatility. However, as I stated, Central Banks launched into action last week provided a short-term “relief” surge to the market effectively putting plans back where they were before all this happened in the first place.
However, the technical underpinnings, while still bullishly biased at the moment, are beginning to show more substantial deterioration. That, combined with the failure of the market to breakout about 2100, again, keeps allocation models on hold, again, this week. In other words, we remain in “limbo” and frustratingly so.
Once again, the risk/reward remains unbalanced does not justify taking on additional equity risk in the model.
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.
