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.
Fed All But Promises To Cut Rates
Despite stronger than expected inflation and employment numbers, an uptick in economic activity indices, and markets at record highs, Jerome Powell all but promised to cut rates at the end of this month.
Our suspicion is the Fed is either aware of the potential exogenous risk to markets, like Deutsche Bank, and has been called on by the ECB to provide liquidity to the financial markets, or Powell has just completely given up independence to the White House wishes.
Our best guess is the former. If that is indeed the case, there is likely not much the Fed can do to stem the next decline. However, in the meantime, markets are rising, and we need to continue to participate.
With the breakout to new highs and the reaffirmation of our buy signal, we can look to increase exposure to portfolios on any market action that reduces the current extreme overbought condition.
With Q2 reporting season going into full swing next week, as noted above, there is a potential short-term risk to share prices which could provide a better entry point to add to equity exposure. Be patient for that confirmation.
As stated previously, July and August tend to be challenging months for the market, so we want to be careful, particularly with the economic backdrop weakening.
Take the following actions on Monday.
- If you are overweight equities – Hold current positions but remain aware of the risk. Take some profits and rebalance risk to some degree if you have not already.
- If you are underweight equities or at target – rebalance risks, look to increase holdings in domestic equities opportunistically.
With the markets back to extremely overbought conditions, patience will likely be rewarded.
If you need help after reading the alert; do not hesitate to contact me.
401k Plan Manager Beta Is Live
We have rolled out a very early beta launch to our RIA PRO subscribers
Be part of our “Break It Early Testing Associate” group by using CODE: 401
The code will give you access to the entire site during the BETA testing process, so not only will you get to help us work out the bugs on the 401k plan manager, you can submit your comments about the rest of the site as well.
We have several things currently in development we will be adding to the manager, but we need to start finding the “bugs” in the plan so far.
We are currently covering more than 10,000 mutual funds and have now added all of our Equity and ETF coverage as well. You will be able to compare your portfolio to our live model, see changes live, receive live alerts to model changes, and much more.
We are building models specific to company plans. So, if you would like to see your company plan included specifically, send me the following:
- Name of the company
- Plan Sponsor
- A print out of your plan choices. (Fund Symbol and Fund Name)
I have gotten quite a few plans, so keep sending them and I will include as many as we can.
If you would like to offer our service to your employees at a deeply discounted corporate rate, please 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.)
Model performance is based on a two-asset model of stocks and bonds relative to the weighting changes made each week in the newsletter. This is strictly for informational and educational purposes only and should not be relied upon for any reason. Past performance is not a guarantee of future results. Use at your own risk and peril
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