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.
Trump – Week One
The first week of office for President Trump has been one of rapid action. From immigration, to building “The Wall,” the initial steps of the ACA repeal, and promises of infrastructure spending sent the markets higher this past week. That’s the good news and as I noted last week:
“I would NOT be surprised for the markets to have a “relief rally” next week and make a push for ‘Dow 20,000.'”
Well. That happened. So, what next?
While there really isn’t any “bad news” to speak of, the extension of the market remains extreme. As noted above, we are in the early stages of a “risk off” rotation which suggests a mild correction is likely in store as we head into February.
With buy signals on all three indicators registered currently, any corrections are likely to be somewhat limited back to the rising short to intermediate-term moving averages.
This would suggest a correction back to 2200 on the S&P 500 would likely be a “buyable” trading level. As noted in the chart above, the current extension above the moving average will likely be corrected in fairly short order. Such a correction will relieve some of the extreme overbought conditions that currently exist and allow for additional risk exposure in portfolios if needed.
As noted in the main body of this week’s missive, the current extremes on many fronts suggest investment risk remains elevated which is why I have not increased the allocation model to 100% as of yet. This is also why I have suggested over the last couple of weeks to use this current advance, and extension, as an opportunity to clean up portfolios. (Use guidelines noted previously.)
Tighten up stop-loss levels to current support levels for each position.
Hedge portfolios against major market declines.
Take profits in positions that have been big winners
Sell laggards and losers
Raise cash and rebalance portfolios to target weightings.
If we can get a correction that resolves the overbought, extended and excessively bullish backdrop to the markets currently, I WILL increase the allocation model to 100%. For now, we will wait and let the markets tell us what it wants to do next.
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.
