Written by Lance Roberts, Clarity Financial
The Real 401k Plan Manager – A Conservative Strategy For Long-Term Investors
Please share this article – Go to very top of page, right hand side for social media buttons.
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.
Looking For Signal Reversal
Given the recent volatility of the market, the lack of any movement towards legislative action, and weak internal participation, we have been maintaining cash levels and rebalancing portfolio allocations currently.
We will watch developments closely as we head into next week. Ideally, we would like to see a firming of the market environment and a reversal of the short-term “sell signal” currently registered. The somewhat “mad dash” into “everything” is worrisome particularly at a time when both “sell signals” are flashing warning signs.
However, if things improve next week, and the short-term signal is reversed, 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.
