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Welcome! This guide will walk you through how to apply the 401(k) Allocation Model to your retirement account. Whether you’re just starting out or need a quick refresher, we’ll cover everything you need to know – from reviewing the recommendations to updating your allocations through your 401(k) provider’s platform.
For those who prefer the quick version, applying the 401(k) Allocation Model is straightforward and takes just a few minutes:
If you’re already familiar with adjusting your allocations, the process should take no more than five minutes. New to this? No problem – keep reading for a detailed walkthrough on how to use the 401 Model and apply its recommendations effectively.
The 401(k) Allocation Model uses a tactical asset allocation approach to help you optimize your portfolio’s performance while reducing exposure to market risks. By adjusting allocations in response to economic and market changes, the model provides a strategic balance of growth and protection for your retirement savings.
In most market conditions, the 401(k) Model offers updated allocation recommendations on a monthly basis. These updates, available exclusively to premium members, are posted on the last trading day of each month and guide your investments for the coming month.
You can find these recommendations on the Current Recommendations page, accessible through your account dashboard after logging in. To make the process even easier, we send out monthly email notifications with direct links to the latest updates, ensuring you’re always in the loop and ready to act.
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The 401(k) Allocation Model takes a straightforward, data-driven approach to help you get the most out of your retirement account. Each month, it evaluates the performance of available investment options while considering prevailing economic and market conditions. This thorough analysis enables the model to identify the strongest-performing funds and update allocations to keep your portfolio optimized.
Every 401(k) plan offers a unique selection of funds, but there are common patterns in the types of investments available. Most plans include a range of stock funds with domestic exposure, a few international stock funds, a selection of bond funds, and at least one stable value or money market fund designed to provide cash-like stability. The 401 Model is built to adapt to the specific offerings in your 401(k) plan while aligning closely with its recommended ETF counterparts.
Although implementing the 401 Model may require some initial effort to match the suggested allocations to the available funds in your plan, we’re here to assist with this process if needed. The investable ETFs that form the basis of the model are designed to closely mirror the performance of funds commonly found in 401(k) plans.
The specific ETFs used by the model are listed below:
| 401 Model Investment Options | |||
|---|---|---|---|
| ETF | Description | Objective | Benchmark |
| Domestic | |||
| SPY | SPDR S&P 500 ETF | Exposure to domestic large-cap companies | S&P 500 |
| IJH | iShares Core S&P Mid-Cap ETF | Exposure to domestic mid-cap companies | S&P MidCap 400 Index |
| IJR | iShares Core S&P Small-Cap ETF | Exposure to domestic small-cap companies | S&P SmallCap 600 Index |
| International | |||
| EFA | iShares MSCI EAFE ETF | Exposure to companies in Europe, Australia, Asia and the Far East | MSCI EAFE Index |
| Fixed Income | |||
| AGG | iShares Core U.S. Aggregate Bond ETF | Exposure to the domestic fixed-income market | Barclays U.S. Aggregate Bond Index |
Note: Target-date funds, commonly available in 401(k) plans, are excluded from the 401(k) Allocation Model due to their rigid structure and limited ability to adapt to changing market conditions. These limitations often result in suboptimal performance compared to the dynamic strategy employed by our model.
Your 401(k) plan should contain at least one fund that closely matches each of the funds listed above. By identifying which funds in your plan correspond to those in the 401 Model (we cover how to do this below, or we can assist you directly), you’ll be able to implement the 401 Model recommendations seamlessly within your account.
The 401(k) Allocation Model follows a disciplined process to determine recommended allocations. Each month, it analyzes the performance of eligible funds within your 401(k) plan and identifies the top three ranked options. The portfolio is then reallocated according to the recommended percentages below, ensuring a strategic balance between growth and risk management.
| 401 Model Allocations by Rank | |||
|---|---|---|---|
| Fund Rank: | 1 | 2 | 3 |
| Allocation | 50% | 30% | 20% |
The latest recommendations are posted on the 401 Model Current Recommendations page, ready for you to review and implement with ease. These updates are designed to be both simple and effective, empowering you to confidently manage your portfolio and stay on track toward achieving your retirement goals.
When you log in to view the recommendations, you’ll see a section titled Current 401 Model Selections, along with a table outlining the suggested funds and their corresponding percentages. Below is an example of the table format; note that the funds shown are for illustrative purposes only.
| Current 401 Model Selections | |||
|---|---|---|---|
| Rank | Fund | Description | Allocation¹ |
| 1 | SPY | SPDR S&P 500 ETF | 50% |
| 2 | IJR | iShares Core S&P Small-Cap ETF | 30% |
| 3 | IJH | iShares Core S&P Mid-Cap ETF | 20% |
This table contains everything you need to implement the 401 Model’s current recommendations in your account. In the next section, we’ll walk you through the process step-by-step, showing you how to update your allocations on your 401(k) platform.
Now that you have the latest 401(k) Model recommendations, it’s time to apply these changes to your account. While the exact process can vary depending on your 401(k) provider, the general steps to update your allocations are straightforward.
If you’re unsure how to proceed or would like more detailed guidance, refer to your provider’s platform or contact their support team. Most plans provide an easy-to-navigate online interface for making these updates.
To get the most out of the 401(k) Allocation Model, it’s important to identify which funds in your specific 401(k) plan align best with the funds recommended by the model. Here’s how to determine the right matches:
Start by reviewing the list of funds available in your 401(k) plan. The goal is to find index funds that track the same benchmarks as those used in the 401 Model. For example:
Index funds are preferred because they provide broad market exposure, lower fees, and consistent tracking of their benchmarks.
Expense ratios are a clear indicator of whether a fund is actively or passively managed. Index funds typically have much lower expense ratios compared to mutual funds. As a general rule, stick with funds that have expense ratios under 0.20%, as these are more likely to be cost-effective, passive options.
Target date funds, often marketed as “set-it-and-forget-it” options, are not suitable for use with the 401 Model. These funds follow a pre-set allocation schedule and lack the flexibility needed to align with the dynamic strategies of the model.
Model Investing offers a free 401(k) Matching Diagram to take all the guesswork out of the process. Simply reach out to us using our Contact Us form, include a copy of the fund options available in your 401(k) plan, and we’ll provide you with a customized diagram showing exactly which funds in your plan correspond to those in the 401 Model.
Within most 401(k) platforms, there are two main ways to manage your investments:
While the interface may differ by provider, these steps summarize the process for updating your portfolio:
Congratulations! By applying the recommendations, you’ve taken an important step toward optimizing your 401(k) and achieving your retirement goals. If you have questions about your specific plan or platform, your provider’s support team can often assist with navigating their tools.
Check for Rebalancing Frequency Rules: Some plans may limit the number of times you can rebalance your portfolio within a specific timeframe (e.g., once per quarter or twice per month). Be mindful of these restrictions as you apply the model’s updates.
Timing of Changes: Changes are often processed at the end of the business day. Be aware of any cut-off times for same-day processing, especially if updates align with specific market events or strategy notifications.
Stay Consistent: Implementing the 401(k) Model’s recommendations each month ensures you remain aligned with the strategy and maximize its potential benefits.
For most users, updating your allocations each month to reflect the 401(k) Allocation Model recommendations is sufficient to fully optimize your retirement account. However, we understand that some investors may wish to customize their approach to better match their personal financial goals or risk tolerance.
While the 401(k) Allocation Model is designed to provide strong performance with managed risk, certain users – such as those well into retirement or those with a very low risk tolerance – may prefer to reduce risk even further.
The best way to achieve this is by maintaining a portion of your portfolio permanently allocated to a Stable-Value Fund, which offers low-risk, cash-like stability. You can then apply the 401 Model recommendations to the remaining balance of your portfolio. For example, if you want to reduce exposure to market fluctuations, you could allocate 20% of your account to the Stable-Value Fund and apply the model to the other 80%.
To simplify this process, we’ve included a table below that demonstrates how to implement the 401(k) Model recommendations while incorporating a permanent allocation to a Stable-Value Fund. Use it as a guide to tailor the strategy to your specific comfort level.
| 401 Model Allocations by Rank | ||||
|---|---|---|---|---|
| Allocation Option | Stable-Value Fund | #1 Ranked Fund | #2 Ranked Fund | #3 Ranked Fund |
| Standard Allocation (Recommended) | 0% | 50% | 30% | 20% |
| Slightly Risk Averse | 10% | 45% | 27% | 18% |
| Moderately Risk Averse | 20% | 40% | 24% | 16% |
| Strongly Risk Averse | 30% | 35% | 21% | 14% |
| Severely Risk Averse | 40% | 30% | 18% | 12% |
In this table, the Standard Allocation is our recommended approach for most users, and these are the allocation percentages you’ll find on the 401 Model Current Recommendations page. If you prefer to reduce your market exposure further, you can choose one of the alternative allocation strategies.
For example, if you select the Moderately Risk Averse allocation, you would allocate 20% of your portfolio to the Stable-Value Fund, 40% to the #1 Ranked Fund, 24% to the #2 Ranked Fund, and 16% to the #3 Ranked Fund. This method keeps your account aligned with the 401(k) Model recommendations while reserving a portion of your portfolio in the Stable-Value Fund to provide additional risk reduction.
To offer additional flexibility, the Current Recommendations page includes a secondary table that ranks all the funds within the 401 Model from best to worst. This table is ideal for users who may wish to make slight adjustments to the model’s recommendations, whether to achieve greater diversification or align with personal preferences.
The Complete Ranking Table features a color-coding system to help identify the status of each fund:
| Key | |
|---|---|
| Green | Showing positive price performance and acceptable as an investment |
| Yellow | Acceptable as an investment but significantly better alternatives exist |
| Red | Not recommended at this time |
Funds highlighted in green are considered suitable investments, though we recommend focusing on the highest-ranked options to maximize performance.
Please note that deviating from the 401 Model’s recommendations may result in performance that differs from the results displayed on our site. All performance metrics and charts are based on strict adherence to the standard allocation percentages, without modifications or permanent allocations to the Stable-Value Fund.
This concludes the 401 Model Tutorial.
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The information provided here is for informational purposes only. Model returns do not reflect any management fees, transaction costs or expenses. Investing involves a great deal of risk, including the loss of all or a portion of your investment. Nothing contained herein should be construed as a warranty of investment results. Past performance is not an indication of future results. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. Model Investing maintains positions in the funds discussed within this site according to model recommendations.
