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.
Read The Following Carefully
This week, I am going ahead and ratcheting the 401k model up to 100% ONLY because the market broke out on a technical basis, and I am doing so with a high degree of concern.
My internal, emotional bias, is to leave things where they are currently. However, with Yellen’s testimony last week, we must recognize the power of “easy money” and act accordingly.
THERE IS NO REQUIREMENT YOU DO ANYTHING.
Since 401k plans have a limited number of options, AND have limitations as to trading, if you are NOT comfortable with the markets current backdrop, particularly as we head into the last months of summer, there is no requirement for you to make changes. This model is simply a guide.
However, with that said, I am adjusting the model to reflect the current “break out” of the market and increasing exposure accordingly.
NOTE: This could be a VERY short-lived transition, so please, act accordingly to your own personal risk-tolerance and goals. There is nothing wrong with keeping a more conservative allocation in 401k plans currently.
As I noted last week, we did add bond exposure to portfolios and will now look for a pullback in the equity markets over the next week to increase the equity allocations in 401k plans.
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. principle. 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.
