Written by Lance Roberts, Clarity Financial
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.
Too Far, Too Fast
As we have been discussing over the last several weeks, the sharp rally in stocks has gone too far, too quickly.
While the rally pierced the 200-dma this past week, which is bullish, the markets are now back to extreme overbought conditions.
More importantly, despite the rally, longer-term “sell signals” remain intact which keeps our allocation reduced for now. It is not uncommon for there to be very sharp rallies in an ongoing bear market, so waiting for a confirmed change of stance pays off more often than not.
No change to allocations this week, we are looking for this rally to “rest” a bit and allow for a better opportunity to increase exposure. Continue to follow the model strategy for the time being.
- If you are overweight equities – take some profits and overall portfolio weights to 75% of your selected allocation target.
- If you are underweight equities or at target – hold positions for now.
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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