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.
The Dog Days Of Summer
As we head into the “Dog Days Of Summer” the recent volatility of the market, the lack of any movement towards legislative action, and weak internal participation, keeps us maintaining higher cash levels and rebalancing portfolio allocations.
Ideally, we would like to see a firming of the market environment and a reversal of the short-term “sell signal” currently registered to become more confident about increasing equity risk. The somewhat “mad dash”‘ into everything over the last couple of weeks remains worrisome.
Last week, the turmoil in the markets kept the initial warning signal and “sell” signal intact which keeps portfolios a little more heavily weighted in cash. We will watch developments closely as we head into next week to see if the recent market weakness can shore itself up.
As opposed to our portfolio model allocations, where we have more flexibility in movement, we look for opportunities to adjust risk exposure with a view of a 90-day holding period. (This is due to 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.
