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.
Reducing Model Weightings
As I noted last week:
“While the bullish trend is intact, we are nearing the end of the seasonally strong time of year. Furthermore, the things happening in Washington are NOT beneficial for the economy or the markets. So pay attention – policy does matter.”
This week, the markets broke on several fronts which have triggered confirmed “sell signals” on several levels requiring a reduction to equity risk exposure. In accordance with the model adjustments above, begin reducing portfolio equity weighting by 25% on any failed rally attempts.
IMPORTANTLY – this does NOT mean go “sell” everything Monday morning. As noted above in the main analysis, we are slightly reducing equity exposure on a rally to hedge risks of a further decline until the current volatility phase passes.
Importantly, as always, portfolio management is about making SMALL adjustments as evidence presents itself and should never be perceived as an “all or nothing” issue.
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 remains “bullishly biased” in the short-term, the longer-term picture of increased volatility, low-forward returns and capital destruction risks still prevail. If you are 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.
