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.
Bulls Run But Warnings Remain
Last week I stated:
“The market changed this past week with the reversal of the recent rally. While the market remains confined to the bullish trend currently, the ‘warning’ signs have escalated over the past week.”
As I also stated:
“With the broader action of the market still bullish, we do not want to start making drastic changes as of yet. However, “alerts” have gone up and we are a bit more defensive now than previously. Continue to rebalance bond holdings back to target allocations but continue adding All NEW contributions to cash or cash equivalents.
If this correction completes, without violating any underlying bullish trends, we will use accumulated funds opportunistically to rebalance equity weightings. If the market violates the bullish narrative, we will begin reducing overall equity related exposure.”
Well, that is exactly what happened as the market broke out of its consolidation last week, confirming the bullish bias.
Rebalance portfolios this week to target allocations as shown below. The model below is just a “sample” allocation. Feel free to adjust the weights according to your own age, risk tolerance and goals.
Importantly, while the market is “bullishly biased” short-term, the longer-term picture of increased volatility, low-forward returns and capital destruction risks still prevail. If you near retirement, moderate your allocation accordingly to reduce the risk of loss.
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.
