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.
Initial Buy Signal Is In…But Caution
As noted in the 401k chart above, the short-term weekly “buy” signals was triggered last week. This is bullish but requires the lower signal to “confirm” the upper before we increase the portfolio model back to 100% target levels.
However, note that back in early 2018, that the signals went from “sell” to “buy” but were quickly reversed due to the intense sell-off in the last quarter of the year. As always, we adhere to the signals closely as they tend to be right more often than not.
So, the early “alert” signal is bullish so we are watching things closely.
As we have noted previously, by the time weekly signals are triggered the market is ALWAYS very overbought or oversold. Therefore, when signals are registered we don’t immediately take action. Instead, like now with markets are extremely overbought on a short-term basis, we want to wait for some type of pullback to add exposure.
As we have been discussing over the last several weeks, the sharp rally in stocks has gone too far, too quickly.
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.
