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.
A Better Position
Over the last several weeks we have been discussing the issue of the breakout to new highs. We also noted that by the times these things happen the risk/reward set up is not optimal to increase equity exposure immediately. We have been suggesting waiting for a bit of “September” weakness to increase equity positions to full target weights. That weakness occurred last week, and any further weakness into early next week, which doesn’t violate support, will give us an opportunity to add exposure accordingly.
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 has been no rush to add additional equity risk. However, we are now in a better position to do so.
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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