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.
New Highs
We only got one quick shot at support at 2800 which was enough to give traders the ability to push the market to all-time highs. As noted above, with the markets VERY overbought in the short-term, be patient. With September approaching, after two strong market months, the odds are elevated we will see some weakness to allow us to more safely bring plans up to full weight.
Remember, since 401k plans have limitations on trading activity, we move much more cautiously to make sure changes to equity weightings are likely to remain for an extended period.
However, over the last several weeks, we have laid out guidelines to manage your plan. Those remain intact this week as well.
- 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 we officially upgraded our allocation model back to 100% exposure, there is no rush to immediately add 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.
