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Market Timing with 401K Contributions

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Last Week, I said now was a great time invest in stocks. Those who listened to me are probably upset as the Dow continued to drop from around 13,250 to 12,700. They may get more upset with me in the coming weeks and months. I'm confident that in years though, they'd come to love me.

I can never understand a couple of things about people's philosophy and investing. A month ago, people considered it a great time to invest pushing the Dow over 14,000. A month later, some companies that made some risky bets are paying the price and we should sell investments today? Buy more at 14,000 and selll at 12,700? That sounds backwards to me. I think it makes more sense to invest now than it did before.

Putting my money where my mouth was, I upped my 401K contribution rate to buy cheaper stocks. I will continue at that pace however long the market stays down or until the I reach the yearly limit. If the Dow gets back up to 14,000 or 14,500, I may lower my contribution rate a bit and hope for pullback. In this sense, I am trying to time market. This will be different than the traditional definition of trying to time the market. First, I will be invested in the market at all times, good and bad. Second, I'll continue to invest at regular time intervals, despite what the market might do.

I suppose that I could simply put their 401K on auto-pilot, but since I've started this blog finances have been on my mind. It's easy enough for me to go in and make the changes as necessary.

Posted on August 22, 2007.

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9 Responses to “Market Timing with 401K Contributions”

  1. Bill says:

    Sounds a lot like dollar-cost-averaging…on steroids!

    I’m not sure how I feel about it. Part of me wants to say “its still a form of market timing” while the other part of me wants to ignore that because I agree with you fundamentally. Buy when markets are down…buy more when they continue to drop!

    Assuming you’ve got endless investment capital, it sounds like a win-win.

  2. Mike says:

    It’s definite a good time to at least rebalance the 401k. All of the instability should’ve pushed down some funds and brought others up.

  3. Brip Blap says:

    Personally I almost twitched and upped my contribution percent, but then I figured I would just leave it alone. I’m trying not to time the market good or bad. Since the 401(k) contribution comes every two weeks for me, I could up my contribution one day and then the market could go up 100 points a day for two weeks before my next paycheck, and I’d get burned. Better to stick with the same percentage all the time. I only adjust it to reflect the new limits each year.

  4. Danny at Money Socket says:

    I do the same thing. I don’t call it timing the market, but rather increasing the effectiveness of dollar cost averaging. Like you, I will be invested long term and I will invest continuously, so why not try to purchase when the prices are lower?

    I like long term investing this way rather than a pure auto pilot model.

  5. Joseph Sangl says:

    Keep it up!!! In twenty years, we will all be asking “Which ski slope are you flying to this weekend?” and “Which business are you buying this month?”

  6. MoneyNing says:

    2-3 days after your post, the market recovered quite a bit. There will always be whiners. Don’t worry about it :)

  7. […] Market Timing with 401K Contributions by Lazy @ Lazy Man and Money. […]

  8. […] Lazy Man joins the investing bandwagon and writes about market timing with 401k contributions. […]

  9. right or wrong says:

    Contributions go to my 401k’s money market fund and from their I wait for a fund to pull back, buying the fund at it’s low. any thoughts?

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