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RE: Should I Contribute to the Retirement Plan at Work? (Part 5)
OK @benrosenthalft I will bite. But first what is your affiliation with said Howard Capital Management?
OK @benrosenthalft I will bite. But first what is your affiliation with said Howard Capital Management?
Hi @whitesj40. Fair question. I am a client of theirs, and in my days as a paid financial advisor, I recommended it to my own clients. But today, I have no relationship to them other than as a client. They don't know I'm endorsing them, and they certainly won't be compensating me in any way. And I'm fine with that. I'm only doing it because I think they provide a service that's invaluable to anyone who's investing in their employer's 401(k), etc., but really has no idea what they're doing. (Which is most of the people participating in such plans, I would wager.) Thank you for the question!
Thanks for the candid response. Actually the service is something that is very hard to find. You can get plenty of stock advice but rarely something that is directly applicable to one's own 401K. About two and a half years ago I found Steve McKee's service https://www.401kselections.com/ which does the same as you describe for Howard Capital Management. ie you submit your lists they give you recommendations once per month. Generally it only holds two securities at a time always for a minimum of 60 days or longer if you have a specific limit in your plan. He uses a ranking system based on momentum and lowest volatility. Its done very well and I have been really pleased with the system but I only use it for 25% of my portfolio.
I didn't even know the concept existed until a found an article on American airlines pilots being sanctioned by there administrator for synchronized trading. It turns out they were all reading the same magazine which had picked up studying their 401K. The fact that they were sanctioned told me it was working and I had to find one that would do the same for me. I found Steve through listening to Chuck Jaffe's podcast http://moneylifeshow.com/.
I will definitely be taking a look at Howard Capital its certainly cheaper :) which is a good thing. Since I found that even well diversified portfolio's suffer lately from positive correlation particularly during big market upsets I have taken to looking at getting diversification in strategy. So at this stage I have 75% invested in legacy, 25% Steve McKee momentum. Legacy are all the holdings I have found in my 401 who pay me a dividend or distribution. I accumulate these only when they go on sale and hold them generally forever. Note I will re-balance from one legacy holding to another and I have built myself a set of rules to use when doing that.
What principle does Howard Capital Management use for selecting funds?
I've actually never followed Howard's fund selections for my portfolio. By the time I learned of the 401(k) Optimizer, I no longer had a 401(k), but I did have a variable universal life insurance policy. Howard was able and willing to analyze and make recommendations on the funds in there as if it were a 401(k), but their fund selection process explicitly excluded sector funds, leveraged funds, & inverse funds (all of which were available in my VUL). I wanted to be able to use those funds, so I didn't rely on Howard's fund selections. But I kept the 401(k) Optimizer anyway because I wanted access to the Buyline, which is a defensive mechanism designed to help people get out of the way of a meltdown in the stock market. I like to apply such defensive indicators when investing long-term in stock market indices like the S&P 500 & NASDAQ 100. (For individual company stocks, I prefer trailing stops as a defensive mechanism.)
As for Howard's fund selection process for a 401(k) (which typically won't offer the kinds of "exotic" funds available in my VUL), I don't remember any of the specific criteria, except that they exclude target date funds & lifestyle funds. I think the 401(k) Optimizer is a good, low-cost solution for someone who wants their workplace plan to be on autopilot. But for someone with your level of technical expertise, I'm not sure Howard's fund selection process would add value to what you're already doing.
By the way, I agree with you that these days, the degree of correlation between asset classes makes diversification at the strategy level critical.