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.
Market Breaks Out
A bit of recent history so you will understand my thoughts on current positioning.
Two week’s ago, I raised the issue of a “breakout” reversing the weakness in the market from March. However, as was my concern then, the “breakout” was very short-lived and the markets took a hit the next week following concerns of more stalling of the legislative actions process.
Then last week, the markets recovered on Thursday and Friday and put the markets back on more secure footing, BUT was not enough to reverse the short-term “sell signal alert” as of yet which keeps the allocation model on hold this week.
Given the recent volatility of the market, the lack of any movement towards legislative action, and weak internal participation, we are maintaining cash levels and rebalancing portfolio allocations currently.
We will watch developments closely as we head into a shortened post-holiday trading week, and would like to see a firming of the market environment with a confirmation of this week’s breakout to increase the allocation model.
If things improve next week, 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.)
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.
