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.
Market Surges On French Election / Tax Cuts
Just like that – the break of the 50-dma and the slide since March is over. With the French election results behind us and “tax cut” hopes on deck, the markets surged on Monday and Tuesday reversing the slide.
That’s the good news.
However, as discussed above, while we have stopped the bleeding momentarily, the markets are still trapped below their highs. As I had noted over the last month, I was looking for an opportunity to move allocations back to the 100% allocation target but the risk/reward dynamic for such a move had not been favorable. With the market now back on a short-term daily buy signal we are looking for either a pullback to support OR a breakout to new highs confirming the bullish trend.
For now, maintain cash levels, rebalance portfolio allocations and let’s see what happens next week. If the economic data continues its string of weakness, geopolitical tensions continue to mount or some other exogenous issue impacts the market in the short-term, you will be thankful for the extra cushion.
We are watching developments closely and feel we have enough equity risk at the moment giving the current backdrop. If things improve next week, or the right risk/reward setup occurs, we will upgrade the allocation model with an expectation of a 90-day holding period outlook. (This is due to stay in alignment with 401k trading restrictions. If we cannot get comfortable with a 90-day outlook, we will remain on hold.)
As stated last week, the fall in rates, as expected, had gotten overdone and the retracement we were looking for to the 2.3-2.4% area occurred. If the market rallies over the next week, rates could push higher. Refrain from adding further fixed income holdings, for now, take some profits from overweight holdings, but maintain exposures.
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.