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.
More Volatility With No Direction
As noted above, more rhetoric on the “trade front” sent stocks running back to resistance last week only to fail. While the week posted a gain, the market still remains trapped within a very tight trading range below the 50-dma.
A break above that resistance will allow for a push back to all-time highs. A break to the downside will retest much lower levels very quickly. The risk/reward currently simply does not warrant taking on excessive risk until the market declares itself one way, or the other.
The economy is slowing down, and the underlying data suggests it is much weaker than headlines state. Corporate profits are also weakening, and there is a rising possibility that investors could begin to reprice valuations in the next month prior to the Fed meeting.
Speaking of “the Fed,” the war between the Fed and the White House continues unabated. With the Fed on deck in mid-September, there is a not-so-insignificant risk the markets could be disappointed by a failure to cut rates.
As noted last week, this is one of those times we have to sit on our hands and wait. With markets moving from one tweet to the next, it is impossible to successfully trade these swings.
However, note in the chart above, that both weekly “buy/sell” signals are close to triggering a “sell.” Also, not that each penetration above the long-term upper trend line has repeatedly failed. A confirmed “sell” signal at this juncture will require a further reduction in equity risk.
Downside risk is elevated, so we are maintaining underweight holdings for now. However, if we begin to break supports, we will recommend reducing risks further.
If you haven’t taken any actions as of late, it is not a bad time to do so.
- 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 done so already.
- If you are underweight equities or at target – rebalance risks and hold positioning for now.
If you need help after reading the alert; do not 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.)
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.
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.
