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.
Looking For An Opportunity
With the breakout to new highs holding this past week, we are now simply looking for a bit of “September” weakness to increase equity positions to full target weights.
As earnings season winds down, focus will return to the economic data and Washington antics. So there is a fairly high probability of a short-term pullback in the next couple of weeks. What we are looking for specifically is a pullback to previous support, that does not violate it, and works off some of the short-term overbought condition.
For now, and as we have repeatedly discussed over the last several weeks, just keep following the guidelines for your 401k plan closely.
- 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.
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