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.
No Changes
Despite the breakout to new highs and a slight breach of 2500, weekly sell signals also remain in place. As such, continue to pay attention to allocation models and reduce risk where necessary to remain a bit more conservative.
As I noted last week:
“I also added a ‘correction potential’ line to the chart above. This is the most likely area a corrective action would entail that would reduce the overbought condition of the market while maintaining the longer-term bullish trend. A violation of that trendline will denote a larger corrective action is in process which will require much deeper reductions in the allocation model. Pay attention to this level which I will begin adjusting each week as necessary.”
For now, bullish trends remain in place, so portfolio allocations remain at target levels 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 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.
