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Should You Have The Maximum # of....
Old 08-30-2004, 07:15 PM   #1
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Should You Have The Maximum # of....

...deposits into your accounts to maximize DCA?

I'm struggling trying to understand the balance between time in the market and DCA.

So far, for the last few years, I have been maxing out my 401-K contributions around August of each year. My gut says that my intervals are too short and I'm not taking advantage of market variance.

Is this even worth my time to analyze if at the end of the day I max out all contributions? :-/



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Re: Should You Have The Maximum # of....
Old 08-30-2004, 08:52 PM   #2
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Re: Should You Have The Maximum # of....

A large percentage of the time you would be better off investing in a lump sum if possible rather than DCAing. IIRC the numbers were something like 85% of the time you would be ahead investing as a lump sum. If you DCA you might reduce the odds of choosing the absolute worst time and this might make sense if you had a single large lump sum to invest.

However, you're talking about ongoing investing so what you want to do is to get the money into the investments (whatever you've chosen) as soon as possible. If you can make your total contributions on Jan 1st each year then do so. Many still DCA because they can't make the full payment at once. I DCA from my paycheque but lump sums from bonuses and such get dropped into investments when they happen.

As for maxing the 401k early then make sure that you aren't losing out on matching money. It seems that a number of companies do the matching calculations on a per paycheque basis. If you contribute a lot on the earlier in the year paycheques then you will go far over the matching amount and in the latter paycheques you won't contribute anything and so will get zero matching. Not all companies do this. Every company that I've worked for in the US has had a "make up" contribution early in the next year to account for this. However, if you weren't at the company at that point you would have missed the "make up" amount.
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