Written by Lance Roberts, Clarity Financial
The Real 401k Plan Manager – A Conservative Strategy For Long-Term Investors
Please share this article – Go to very top of page, right hand side, for social media buttons.
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.
Market Fails To Rally
As discussed at length in the main body of this missive, the market remains deeply oversold short-term. We continue to expect a rally this coming week to take some action to reduce overall portfolio risk.
Currently, we have our FIRST of FOUR sell-signals in place. The first signal is simply a “WARNING” to pay attention to what is currently happening in the markets. Think of it as a “yellow flashing light” at an intersection – slow down and be aware of your surroundings.
As noted, there are indeed some early indications that things have changed. However, with the markets VERY oversold, the best course of action going into next week is use ANY rally next week to make sure your 401k plans are balanced. Use the following guidelines for now.
- 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 – Hold for the moment and let’s see if the market can stabilize.
- If you are at target equity allocations use rallies to rebalance risk in portfolios.
Unfortunately, 401k plans don’t offer a lot of flexibility and have trading restrictions in many cases. Therefore, we have to minimize our movement and try and make sure we are catching major turning points. Over the next couple of weeks, we will know for certain as to whether more changes need to be done to allocations as we head into the end of the year.
If we get a confirming SELL signal, we will begin discussing reducing the target allocation model.
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.