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.
Wait For It….
As I discussed last week:
“The market did trigger a weekly confirmed ‘buy’ two week’s ago as we previously discussed. However, as noted in the main part of missive above, by the time these signals occur the market has generally gotten either overbought or oversold in the short-term.”
That “overbought” condition usually provides a better opportunity in the near-term to increase exposure in portfolios if you remain patient. The pullback on Friday is providing that opportunity.
I suspect that next week could see some more weakness given the previous overbought condition combined with concerns over Turkey.
While there is “no requirement” to make immediate adjustments to your 401k plan, you should balance your portfolio to your personal level of risk tolerance, you can use a pullback to support to continue taking the following actions we discussed previously.
- If you are overweight equities – reduce international and emerging market exposure and add to domestic exposure if needed to bring portfolios in line to target weights.
- If you are underweight equities – begin increasing exposure towards domestic equity in small steps. (1/3 of what is required to reach target allocations.)
- If you are at target equity allocations currently just rebalance weights to focus on domestic holdings.
While will officially upgraded our allocation model back to 100% exposure, there is no rush in immediately adding additional equity risk. Do so opportunistically.
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.
