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.
Tax Reform Passes The House
Previously, I stated:
“Last week, markets tumbled a whopping 5-points. No, that wasn’t a correction. #Sarcasm”
I could restate that for this past week. However, without the huge surge on Thursday, the markets would have been significantly lower for the week. Nonetheless, the pop on Thursday keeps the “bulls in the driver’s seat” which keeps portfolio allocations at target levels for now.
Be aware we are heading into a very light, Thanksgiving, trading week. Volatility will likely pick up so if you are concerned about the risks in your portfolios, some rebalancing is advised. However, be cautious about “reacting” to market actions until we can better gauge market action AFTER the holiday period.
We previously recommended rebalancing risks in portfolios by trimming overweight equity exposure but adding to fixed income exposure. With those actions complete, there is nothing to do currently except wait for the next signal to take action.
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. We will use these funds opportunistically to add to weightings when corrections occur.
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.
