Written by Lance Roberts, Clarity Financial
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.
Don’t Let Your Emotions Take Control Of You
Bull markets have a tendency to suck the most investors in at the point to inflict the most possible pain.
That is the point we are currently at in the markets today. After a recovery rally from the lows many investors are now back to where they were in January of last year. The rally also tends to make investors forget the pain the endured during the previous decline.
If you feel like you “must get back into the market now,” you are probably allowing your emotions to get the better of you. This is why most investors tend to repeatedly buy tops and sell bottoms.
This market rally will stall. It will correct, and it will provide you a much better risk-reward entry point to increase equity exposure. Don’t allow short-term market movements to deviate you from your long-term investing goals.
Chasing performance is the absolute best way to destroy your investing outcome.
As noted last week, we now have both “buy” signals now in place which suggests that target allocations move to 100% equity exposure. However, with the market EXTREMELY overbought on a short-term basis and pushing up against longer-term trend lines, it will require patience to wait for a correction to increase exposure into.
In the meantime, we can prepare for this opportunity by continuing our actions we have recommended over the last several weeks.
- If you are overweight equities – take some profits and reduce portfolio risk on the equity side of the allocation. However, hold the bulk of your positions for now and let them run with the market.
- If you are underweight equities or at target – remain where you are until the market gives us a better opportunity to increase exposure to target levels.
If you need help after reading the alert; don’t hesitate to contact me.
Exciting News – the 401k Plan Manager is “Going Live”
We are making a “LIVE” version of the 401-k allocation model which will soon be available to RIA PRO subscribers. You will be able to compare your portfolio to our live model, see changes live, receive live alerts to model changes, and much more.
This service will also be made available to companies for employees. If would like to offer our service to your employees at a deeply discounted corporate rate please contact me.
Stay tuned for more details over the next couple of weeks.
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.
