The Real 401k Plan Manager – A Conservative Strategy For Long-Term Investors
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.
Market Continues To Struggle
As I wrote two weeks ago, the “reflexive rally” to reduce exposure finally got into the “neighborhood” of our initial target area that we laid out nearly a month ago. The market failed at that target on Friday which confirms the reduction measures we laid out previously.
If you have not already taken action in your 401-k plan, I would advise using last weeks recovery to move to target allocations next week and mitigate risk temporarily. With both confirmed “sell signals” in place, and becoming more negative, the risk to equity exposure currently remains to the downside. If conditions improve we will rebalance equity risk in portfolios back to full allocations but a LOT has to happen first.
If you have already reduced equity exposure just sit tight this week and let’s see what happens.
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.