Written by Lance Roberts, Clarity Financial
The Real 401k Plan Manager – A Conservative Strategy For Long-Term Investors
Please share this article – Go to very top of page, right hand side, for social media buttons.
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…Not Time To Panic
As I penned last week:
“Well, it happened.
And yes, it certainly did not “feel” good.
But as noted repeatedly throughout this weekend’s missive, it is important NOT to mistake a short-term correction for a full-blown reversion.”
Keeping perspective is always important. The current correction has only retraced to the top of the longer-term upper bullish trend line. As I have discussed previously, the massive extension above the longer-term trends HAD to be corrected.
Furthermore, BOTH of the lower indicators remain firmly on “buy” signals which keeps allocations weighted to the long-side.
While this COULD be the beginning of a larger corrective process that will require further action, it is simply WAY to early to know for sure. As I laid out in the main body above, the actions of the market over the next week, or two, will determine our next major course of action.
We have been hedging for this event for the last two months by repeatedly suggesting rebalancing portfolio allocations and reducing risk.
Continue adding All NEW contributions 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 the market decides where it is headed next.
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.
