Semi-Annual 401k Adjustments

Twice a year (January/Febuary and August/September), I make a practice of evaluating adjustments that I should make to my 401k.  After all, my 401k has a decent amount of money in it and I want to retire someday...so, I think its important to manage the fund allocations according to my perception of market risk over the next few months.  I also noticed that the older I get, the more conservative my fund elections get.  So, I'll continue that trend over the years.

I plan on making some serious changes in the next month by getting a lot more conservative in my risk exposure. Why, you might ask?
First, I'm looking at where the Dow and S&P500 are currently at and what their trends are (200ma). In my opinion, we are at a high point while the indices are still in a bear market.  The potential upside is not as significant as the potential downside.
Second, I look at events that could lead to further downside.  European debt is my biggest fear at the moment.  There are a number of countries in trouble and, eventually, simple math will force some tough decisions that will lead to a temporary ripple that the markets won't like. 
Third, many domestic issues have not gone away.  US Debt continues to rise, unemployment has not moved significantly down, oil prices are stuck around $100 per barrel (Iran could make it worse), housing is not bouncing, and we have politics.  There is a fair possibility that the US can fall back into recession early this year.

So, my new changes are factoring in a lot of these ideas.  If I'm wrong, I will have little growth in my account.  If I'm right, I stand to SAVE a lot.  Note that by limiting my risk, I'm expecting little to no growth in my account for the next 6-9 months, until I reassess in Sept/Oct.

Anything can happen though. The S&P could move up to 1500 in the next few months. Maybe the Fed issues QE3 to push off the problems for another couple years.

I want to emphasize that I don't like to try and "time" the market, but the last market crash opened my eyes a bit to the hit that my 401k took at the time.   If I could have protected 10-20% of the value of my account back then, I would have saved a lot of money.  So, this is the first time I'm making significant changes to my account, like the ones I'm proposing.

That said, here's what I'm gonna do...

My last changes were in Q2 2011 and Mid-2010.  I plan on making my new allocations sometime in Q1 2012....probably late January or early February.  I'll see how the market plays out over the next couple weeks before I make my moves.

	Year End 2010	Q2 2011 Allocations	Q1 2012 Allocations
Guaranteed Income Fund	14.99%	35%	20%
Bond Fund	2.13%	0%	40%
Equity & Income Fund	23.66%	20%	20%
S&P 500 Index Fund	2.89%	0%	0%
Large Cap Growth Fund	10.68%	10%	5%
Large Cap Value Fund	8.41%	5%	3%
Mid Cap Value Fund	10.16%	8%	2%
Mid Cap Growth Fund	5.23%	5%	4%
Small Cap Value Fund	9.34%	8%	2%
Small Cap Growth Fund	5.35%	5%	4%
Global Strategy Fund	4.93%	2%	0%
International Fund	2.24%	2%	0%
	100.00%	100%	100%

Feel free to leave a comment.
~JP

***Please see my update to this post***