401(K) Update

Jan. 08, 2016 9:43 AM ET1 Comment
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Value, Portfolio Strategy, Contrarian, Medium-Term Horizon

Contributor Since 2013

My analysis focuses on the cyclical nature of individual companies and of markets in general. I've developed a unique approach to estimating the fair value of cyclical stocks, and that approach allows me to more accurately buy near the bottom of the cycle.

My academic background is in political science and I hold a Bachelor's Degree and a Master's Degree in political theory from Iowa State University. I was awarded a Graduate Research Excellence Award in 2015 for my research on conservatism.

This article is a quick update of the article I wrote about my 401(k) strategy this year titled Achieving Alpha is Tricky--But Not Impossible--With Limited 401(k) Options. As you will note from the article, my initial allocation for 2016 was 40% cash, 30% Large Cap Growth, and 30% Mid-Cap. My initial plan was to move 1/2 of the cash into an S&P 500 index equivalent if the market dropped 5-10%. I noted that it was often the second day of panic when I tried to get my money in so I liked to give myself some flexibility with that 5-10% range.

Yesterday was interesting because it felt like a panic day, and the S&P 500 moved below 5% and looked like it might dive at the end of the day. It felt exactly like the type of panic day that I like to move money in, however it wasn't quite at my 5% threshold. My general feeling is that earnings season will be good for the majority of companies, and I was a little worried if I waited until next week to move money in I might miss the opportunity to take advantage of this dip. Unfortunately, I also didn't want 1/2 of my cash put into the market a 3.5 or 4% if their was a late day rally. Since my change in allocation wouldn't take place until the end of the trading day I had no guarantee of the price I would get in. Ultimately, I decided to split the difference and move 1/4 of my cash into the market yesterday. That way, if the market dived another percent or two lower next week I could safely get it all into the market in between 5-10%. And if it didn't I would at least capitalize on this dip a little bit.

My second complication was that since I had just reallocated my account for the new year, I had surpassed the transfer restrictions on the S&P 500 equivalent fund I was aiming for. So, left with few options, I opted for one of the few funds with no transfer restrictions in this account. While the other funds are separate accounts, this one is publicly traded, so I can share it here: American Century Small Cap Value Fund A (ACSCX). I may transfer this at some point when my transfer restriction lifts, or, if it is performing well, I might leave it...we'll see. The important thing at this point is to get some money into the market while it is down.

Here is how the account looks as of this morning:

Fund Allocation % Return
Cash 31.23% 0.02%
Large Cap Growth 29.02% -6.11%
Mid Cap 29.32% -5.71%
Small Cap 10.41% 0.00%

Total value of the account is down -3.53% while the S&P 500 is down -4.93%. So, we are already outperforming (now let's just hope we can outperform and make money).

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