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401k invest strategy
Old 10-08-2008, 08:22 PM   #1
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401k invest strategy

This market "collapse" got me thinking about how I contribute to my 401k. For years now, I simply set my contribution rate at the max of 15% per paycheck. I usually hit the max ($15,500 this year) around July.

Does anyone think I should re-think this strategy and calculate how much to contribute from each paycheck so I have an equal amount taken throughout the year to reach the max? Obviously, that would be helping me now because I'd have a better average cost basis given the recent declines.

You can certainly argue the other way as well.

Am I over-thinking this? Let me know your thoughts if I should change or just stay the course in future years.


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Old 10-08-2008, 09:42 PM   #2
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If you like to have the same paycheck amount every month, spread it out evenly over the year.

I prefer to make the contributions as early in the year as possible as it gives those funds that much more time (6 months?) to grow in a tax deferred account. My best guess is that in early 2009 the stock market will be lower than it will be in late 2009. I am going to push ($1500/bi-weekly paycheck) to contribute as early as I can in 2009 in an attempt to get more invested when the market is low.

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Old 10-09-2008, 05:25 AM   #3
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There are two forces at work here:

1. Yes, if you contribute the money up front, it will have longer to grow.
2. If you are investing in stocks, you are better off dollar cost averaging by investing monthly than hoping the first half of the year is a good time to buy.

If it's possible for you to put all the money into a money market fund up front but can also internally transfer it gradually to a stock fund, then you can have the best of both worlds.

If you're primarily investing in a money market or short term bond fund anyway, then you might as well get it in as quickly as you can.

Otherwise, go for 1/12 per month and dollar cost average. On stocks, the effect of dollar cost averaging outweighs the benefits of having a few months more to grow.

BTW, I wouldn't try to predict when the market will be low and when it will be high. Nobody can. Over time, dollar cost averagers win out.
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Old 10-09-2008, 05:43 AM   #4
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If you are receiving a certain percent employer match you could be screwing yourself out of part of that - at least that's how it is with the fed govt FERS system employer match.
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Old 10-09-2008, 06:37 AM   #5
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I make all my contributions to my 401(k) at the beginning of the year. I put them in the stable value or an intermediate bond fund. My thinking is that I will get the full year of dividends and I can always exchange out of fixed incomei into equities when I feel like it. Also, if I get laid off or quit my job, then I have already maxed out my 401(k) for the rest of the year. For my employer contribtuion it doesn't matter when I contribute, so I don't have to space out contributions with each paycheck to get the most match.
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