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.
Add Exposure Slowly
Finally, a breakout.
With weekly “sell signals” still in place, I am not going to increase the allocation model just yet. We are running into resistance and have a ways to go before breaking out to new highs which would reconfirm the ongoing bullish trend.
Over the last several weeks we have been recommending the following actions:
- If you are new to reading the newsletter or have NOT taken any previous actions or are overweight equities in your plan – Do nothing.
- If you are slightly underweight equities in your plan – move to the RISK ADJUSTED allocation model.
- If you are very underweight equities in your plan – move 50% of the way toward the RISK ADJUSTED model.
At this point the rules change slightly:
- If you are overweight equities – do nothing.
- If you are underweight equities – move to target allocations.
- If you are at target equity allocations currently, you can add further exposure on any weakness in the market which does NOT violate previous support levels.
- i.e. Move from 45% equity exposure to 50%.
I know, it’s boring. But “baby steps” are always the best course of action. There remains the risk we are in a broader topping process, or some unexpected event could quickly reintroduce “risk” back into the markets. Small steps let us adjust accordingly without being emotionally driven which leads to bigger mistakes.
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.
