Written by Lance Roberts, 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.
Trump Runs Into Trouble
As I have been writing over the last few weeks, the 401k model needs to be adjusted up to 100% equity allocation. We still have a couple of the seasonally strong months of the year left ahead of us, and as noted above, the bullish trend remains intact.
Given the current consolidation in the market over the last couple of weeks, and the current risk/reward setup as noted above, the incremental increase in exposure simply has not been justifiable given the limitations that exist in 401k plans. However, we may be nearing an opportunity to get the allocation realigned with the underlying signals soon and was something I noted two weeks ago:
“The current correction, if it continues, may give me the opportunity to get the model realigned with the underlying signals. Such an increase will require a correction back to moving average support around 2250-2300.”
As noted in the 401k-chart above, the current extension above the moving average has started to correct.
Look for a bounce next week, on the pivot of Wall Street assuming the failure to pass healthcare reform is now a “good thing,” to reduce any underperforming assets in your portfolio. Following such a bounce, I would suspect a continuation of the current correction which would potentially provide the opportunity to readjust equity exposure higher heading into the last couple of months of the seasonally strong period of the year.
I did note two weeks ago, the run-up in interest rates HAD put bonds into a favorable position to add exposure in portfolios. That suggestion played out very favorably but with rates now back to short-term overbought conditions, refrain from adding further fixed income holdings until the market bounces.
If the current correction continues and resolves the overbought, extended and excessively bullish backdrop, 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.
