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.
Storm Warnings
As noted last week:
“The bullish trends are now under direct assault which has triggered ‘alerts’ across the board. Currently, longer-term bullish trends remain intact, but the underlying deterioration in the markets and price momentum continues to increase.
This is not a market currently to be trifled with as the overbought and overly bullish conditions remain at extremes. The time for complacency within portfolio allocations and risk management may be coming to an end.”
With shorter-term “sell signals” in place, it is a good time to pay attention to your allocation models and reduce risk where necessary to become a bit more conservative for now. All NEW contributions to plans should currently be adjusted to cash or cash equivalents like a stable value fund, short-duration bond fund or retirement reserves. Stop loss levels should be moved up accordingly.
If the current “storm” dissipates, we can re-risk portfolios with more confidence in near-term outcomes.
“Remember, it is always easier to make up a missed opportunity than trying to make up lost capital.”
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.
