Why I Just Made the Biggest Changes to My 401(k) in Years
But a few days ago, I made the most substantial portfolio allocation changes I have in years. And since I believe the reasons may be important to you, I wanted to explain why.
First, let’s start with some background. If you’ve been following my work, you know I’ve been staunchly bullish for a long time. Back in December 2016, in my former position as editor of the Safe Money Report, I dubbed the presidential election a “Trump Quake”. I called it “one of the biggest political developments for the country since the ‘Reagan Revolution’” ... said it would “shift the discussion from years of highly experimental, yet ultimately ineffective, monetary policy to massive fiscal stimulus” ... and told my subscribers several ways they could profit from it.
I continued doing the same here at Weiss Ratings throughout 2017, highlighting all kinds of stocks and sectors that would benefit as the bull kept running. They included financial stocks, infrastructure and construction stocks, defense stocks, travel and leisure stocks, and many others.
I also said you should tune out the political noise and stay long stocks whenever Trump-related comments or events caused market hiccups, regardless of your personal feelings about the president. One reason: A tsunami of money was flowing out of bonds and in to stocks, and it would help to perpetuate the rally regardless.
But now, the Dow is 7,000 points higher than it was on Election Day. Now, the bull market is almost a year and a half older. And now, I’m starting to see signs of market exhaustion.
It’s not just the explosion in stock market volatility we experienced in February, with a pair of “Down-1,000 Days” in a very short span of time. It’s also an increasingly troublesome series of moves I’m seeing in various out-of-the-way corners of the interest rate and currency markets. Throw in the near-record age of this bull market ... the deflation of the global QE bubble ... and the multiple interest rate hikes we’re seeing here and abroad ... and you’ve got the makings of a potentially major market shift.
It doesn’t mean stocks are necessarily going to implode today, tomorrow, next week, or next month. But it’s enough that I decided to adopt a more cautious investment approach in my 401(k). Specifically, I boosted my cash/guaranteed portfolio position to 25% — the highest it’s been in ages. I also added “insurance” in the form of a new precious metals fund allocation, and reduced my stock investments across the board.
Are those the right moves for you to make, too? I can’t say for sure. You may have different risk tolerances or goals than I do. Your 401(k) plan may not offer the same options as mine. You may be subject to different fees or expenses for shifting funds. Or you may be the type of person who NEVER changes your retirement fund allocations.
But I don’t think you should ignore the change in character we’re seeing in the markets. Nor do I think you should underestimate the rising potential for a real shakeout, something much more dangerous to your wealth than we’ve seen in many years.
As always, you can get more specific investment recommendations in my High Yield Investing newsletter. I just sent my readers a “Gala Issue” about this important outlook shift, which you can access by subscribing here or calling us at 877-934-7778. Just don’t wait too long ... because things could get dicey soon.
Until next time,
P.S. Did you get the heads up that I’m on Twitter? If not, you can get quick market updates from me by following @RealMikeLarson