401k Compass > Approach
our 4-step process
401k Compass’s end goal is to consistently deliver timely information to keep subscribers' property allocated using their specific 401k choices. This allocation is based on individual risk tolerance, specific 401k choices, and most importantly, current stock market and economic conditions.
At 401k Compass, we believe most individual investors fail or underperform not because of skill, ability, or desire. It's because of the lack of a consistent, rules-based methodology or system which provides long-term guidance to help them navigate through turbulent markets.
Research indicates most investors rely more on emotions and less on facts when making investment decisions. Using a system that relies on data and math removes emotions from the decision process. The result is fewer investment mistakes and improved long-term performance.
401k Compass uses a proprietary process called Adaptive Asset Allocation (AIA).
AIA provides this rules-based methodology to the individual investor.
We do all the heavy lifting and number crunching in the background. The subscriber need only understand their risk tolerance, open emails from 401k Compass, and apply the suggested changes and updates.
Behind the scenes, AIA is constantly analyzing current market conditions and ranking asset classes and industry sectors. Once this data is compiled, it is applied to your specific 401k choices to determine the best fit. As a result, the funds selected for use have displayed the highest correlation to these top-ranked asset classes and sectors.
The best choices are provided to subscribers every month via email.
See the Adaptive Investment Allocation video
01.
current market conditions
AIA analyzes market and economic data to determine the probable near-term direction of the stock market. Understanding if it is more appropriate to be on “offense or defense” is the initial step in risk management. The stock market tends to develop trends. These trends can be either positive or negative.
By using our proprietary analysis, 401k Compass aims to identify these trends. We will suggest using a higher percentage of stock mutual funds during positive markets. During negative market periods a more defensive position will be suggested (higher allocation to Bond Funds, Money Market, or Stable Value funds). The goal is to capture most of the upside and avoid most of the downside.
02.
determining your individual risk tolerance
Understanding your personal appetite for risk is crucial in your personal asset allocation. 401k Compass provides its subscribers with a Risk Assessment Questionnaire to help you determine your individual risk exposure.
The short questionnaire is automatically scored and delivered to you. The questions are designed to determine your overall risk appetite. After completion you’re risk level/score will be categorized from 1 to 5.
Risk Scale
- Conservative
- Moderate Conservative
- Moderate
- Growth
- Aggressive Growth
These risk scores are used by 401k Compass to help provide appropriate monthly 401K allocation choices. For example: if your risk score is 3, this would indicate your risk level is moderate. This translates into an allocation mix of 60% stocks and 40% bonds.
On the other hand, if your risk score is 5, this would imply your risk level is consistent with aggressive growth. This would translate into an allocation mix of 90% stocks and 10% bonds.
The monthly allocation choices delivered to you by 401k Compass will be consistent with these risk scores. The fund choices available to you from your specific 401k will be used to generate the monthly suggested allocations, as described in Step 4.
The Risk Assessment Questionnaire is meant to help the subscriber determine their personal risk. If you feel it’s appropriate, you’re welcome to deviate from the questionnaire results and use a more or less risky position.
Risk Assessment Questionnaire link: https://risktolerancequiz.com/risk/assessment/12767410425a6a4062b40d3/
03.
current market favorability
Once the direction of the market is determined in Step 1, the goal of Step 3 is to determine which asset classes and market sectors are currently in favor. Said another way, depending on current economic conditions the stock market tends to favor certain industry sectors and asset classes, and disregard others. In step 3, 401k Compass identifies the sectors and asset classes exhibiting the highest current level of relative strength. AIA runs ongoing analysis to rank these sectors and asset classes.
04.
best choices for your specific 401k
In this step, your specific choices/funds in your company’s 401k are analyzed to determine which choices best correlate to the Industry Sectors and Asset Classes displaying the highest relative strength, as defined in Step 3. For example, if Energy and Financial Services are the current top-performing Industry Sectors and Large Cap Growth and Small-Cap Growth are the top-performing Asset Classes.
401k Compass will analyze the choices you have in your specific company 401k and determine which ones contain the highest concentration of these top performers. Each month, a list of the allocation choices will be emailed to you in the 401k Compass Newsletter.
See the table below for a list of market sectors and asset classes.
The subscriber's risk tolerance (Step 2) is also a determining factor. The risk score is used in conjunction with the allocation choices in Step 4 to provide the proper allocation.
You then simply apply the allocation to your 401k.
See a Sample of an example of a subscriber email.
| Financials | Large Cap Growth |
| Energy | Large Cap Value |
| Telecom | Large Cap Blend |
| Technology | Mid Cap Growth |
| Industrials | Mid Cap Value |
| Consumer Cyclicals | Mid Cap Blend |
| Consumer Non-Cyclicals | Small Cap Growth |
| Real Estate | Small Cap Value |
| Utilities | Small Cap Blend |
| Healthcare | International Large, Mid and Small Cap |
| Corporate Bonds | |
| US Government Bonds | |
| Cash |
Virtually all for your specific 401k choices will be primarily comprised of one or more of these industry sectors and asset classes. 401k Compass constantly monitors these sectors and asset classes for current top reformers. We provide you with a list of the choices available within your specific 401K that best resemble these top-performing areas. See the video library for the Methodology video.
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