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401K timing


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2016 Jul 19, 3:00pm   10,765 views  17 comments

by CL   ➕follow (1)   💰tip   ignore  

I've maxed out since back when I was poor, and continue to do so. As time progressed, what used to be a same sized contribution each month has turned into getting all of it in in the first half of the year.

My question is, is there a "better" time of year to put your contributions in, a la "buy low, sell high"? "Sell in May", would seem to indicate that the 2nd quarter might be a good time to be "buying" via contributions.

I had heard before that overall the market's cyclical-ish, and tied to harvest cycles or some shit. Of course, there are graphs galore about what happens during election years, mid-terms, pre-election years and so on. Might all be people trying to predict the unpredictable.

Any preference on quarters, or do you just aim for dollar cost averaging type investing when it comes to 401k?

Thanks
#investing

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1   Ceffer   2016 Jul 19, 3:14pm  

I avoid any semblance of predicting markets and have done reasonable dollar cost averaging a la Vanguard. It has worked out great over years.

If you can't force markets to your will, then forget about market timing. Market timing will drive you crazy, and you will never beat it. Or, you will beat it one day, then lose to it the next. That is just the gambling superstition stating to you that you are fated to prevail over statistics. It is just generally better mental health not to buy into the notion that you are stochastically blessed. If you are, it will happen anyway. If you aren't, then you haven't wasted your precious life mooning over it or trying to direct it.

The gurus don't know, either, they are just in the business of pumping up the suckers, and profiting on the inevitable and inveterate gamblers. Remember the cardinal rule of addicted gambler's self reportage: they never talk about their losers, or about the sum total of winning and losing, just about their winners. They also talk about their superstitions surrounding their next big sure thing.

Also, sure, there will be lucky stiffs purely as a matter of random chance, not inspiration. These random lucky stiffs will often become gurus, to deploy their luck by exploiting the suckers. Looking at and following winners is inductive reasoning, not deductive, and does not work on random markets.

The Wall Street Journal did an article about chasing winners, and actually tracked theoretical investments in past big winners. They showed that chasing winners was the best guaranteed way to become a financial loser. The true future winners were never predictable.

You are in the casino for the long run and the house always wins over the long run. Your real power is compounding over time without losing frivolous amounts gambling.

2   CL   2016 Jul 19, 3:14pm  

Ironman says

Depends on where you have it invested. If you are heavy in stocks, you'll just ride the roller coaster of the market during the year

So, in that case, you would do 1500/month? What if one selected an S&P index fund?

3   CL   2016 Jul 19, 3:17pm  

Ceffer says

then forget about market timing

I guess though, indirectly I've selected timing by virtue of the fact I'm loading it up every year in the earliest months. Should I go with a flat rate throughout the year instead?

4   Shaman   2016 Jul 19, 3:20pm  

I've been considering the same thing. I made a good timing play pulling out of stocks right before the Great Recession hit and dollar cost averaging back in around the bottom. But I still wanted to take advantage of market swings somehow. So I came up with another method.
Put most of your 401k money in stocks of your choice. Save out a percentage (I do a third) to keep in bonds or money market. Then when a big sell-off hits like did during the Brexit, buy in with the reserve money and take advantage of the inevitable upward swing. Then when things level off again, move the third back to bonds and await the next panic.

5   CL   2016 Jul 19, 4:12pm  

Quigley says

Then when a big sell-off hits like did during the Brexit, buy in with the reserve money and take advantage of the inevitable upward swing

Interesting idea!

Ironman says

The bottom line, you need to be in it, so max out your contribution.

Of course. I do that by summer. I'm wondering if the first half is the worst half to invest in, or the best, or if you're better off equal parts every month throughout the year based on cycles.

Ironman says

The other question, what type of match do you get from your employer, and when is it added to your account?

I get a profit sharing deal mid year, fairly substantial, but no matching.

Ironman says

Of course, if you have a crystal ball, you can make a lot better guesses.

Where can I get one? :)

Ironman says

What has the S&P done in the last year or two?

Went down, then record highs? I went to an Index fund due to low fees. My new 401k plan has much, much lower fees in ETFs.

6   Ceffer   2016 Jul 19, 4:40pm  

CL says

I guess though, indirectly I've selected timing by virtue of the fact I'm loading it up every year in the earliest months. Should I go with a flat rate throughout the year instead?

The sooner you contribute, the longer it has to work for you. So I guess the "timing" is to contribute as much as possible as early as possible.

7   Strategist   2016 Jul 19, 4:49pm  

CL says

My question is, is there a "better" time of year to put your contributions in

The real answer is "NO" there isn't a better time. If there was, everyone would buy and sell accordingly, making the system self defeating.

8   neplusultra57   2016 Jul 19, 5:00pm  

You might break it into two: one at the earliest and one sometime in October. There's almost always a very good buy point in October. Research "seasonality". In the end it all comes down to time and rate of return. The rest is luck.

9   thenuttyneutron   2016 Jul 19, 6:19pm  

CL says

My question is, is there a "better" time of year to put your contributions in, a la "buy low, sell high"? "Sell in May", would seem to indicate that the 2nd quarter might be a good time to be "buying" via contributions.

You are better off buying stocks when the full moon is going into a Lunar Eclipse as the moon crosses Sagittarius A.

For added returns on top of your "ok gains", you would need to get a few virgins to sacrifice on the alter of your local bank for the sole purpose of pleasing the sky wizards. Make sure you collect the blood of the sacrifice victims and bath in it 14 days later when the new moon arrives. Your profits would easily double!

That my friend is the only logical way of timing today's stock market.

10   zzyzzx   2016 Jul 19, 7:31pm  

If I could time the market, I would be retired by now. That goes for everyone else here too.

11   SFace   2016 Jul 19, 8:00pm  

Feb 15 to March 7th. The flow of money is the highest for various reasons:

* Pre-tax contributions can be made by March 15 so there is more cash in than normal.

401K matches. A lot of companies do once a year so More $$ flows in than normal

Bonus'. Most annual bonus are paid by March 15. so more $$ will flow in then otherwise.

12   CL   2016 Jul 20, 8:48am  

SFace says

Feb 15 to March 7th. The flow of money is the highest for various reasons:

So that would imply to buy in the 2nd half, right? Since that money likely floods in the first half?

13   HEY YOU   2016 Jul 20, 10:32am  

It's impossible to lose in any retirement/pension vehicles!
Hope no one totals your car.

14   c1561490   2016 Jul 20, 3:21pm  

Interesting question. I downloaded 8 years of historical data for SPY from
http://www.nasdaq.com/symbol/spy/historical & http://www.nasdaq.com/symbol/spy/dividend-history
and then wrote a quick program to simulate how I would have performed over the past 10
years if I purchased in various parts of the year.

The sim lets me specify which months to buy in, using exactly 1 purchase per month. I decided
to compute the average stock price on a per month basis. Stock purschases were
made using this average price, and they were executed on the 15th of the month if a purchase was
made that month.

I also assume enrollment in dividend reinvestment, and purchase more shares on the divident payment date. If the
data is missing the payment date, I pick a date about 2 weeks after the EX date, and purchase the DRIP shares
at that day's price.

You set a yearly contribution, and it splits that equally into purchases amoung the months you specified.

The sim works by just looping through all days from start to end, at each day it checks if it should buy stock
or collect a dividend, and prints out event messages along the way. It also prints how many shares you have
at the end, and higher is better of course.

I ran the sim using $5500 per year, and here's the results vs which months I bought in:

months, num shares at the end
1,2,3 410.86
4,5,6 392.32
7,8,9 391.06
10,11,12 390.83
1 412.73

As you can see, the sim says it's better to buy at the start of the year. Although, that might just be due to collecting a few more dividends the first year and letting that compound over the years.

I attached the verbose output if anyone's interested.

15   CL   2016 Jul 20, 3:57pm  

c1561490 says

Interesting question. I downloaded 8 years of historical data for SPY from

http://www.nasdaq.com/symbol/spy/historical & http://www.nasdaq.com/symbol/spy/dividend-history

and then wrote a quick program to simulate how I would have performed over the past 10

years if I purchased in various parts of the year.

That's awesome! I don't know if I'll change anything, but it's cool to know!

Is the bottom one, simply "all shares bought in January"?

Ironman says

The bottom line, if the money isn't invested, it's not working for you. Just put it in, because you'll never time it right.

No question. Not to dwell too much, but that's not the issue for me. I already max out on it in the first half, I just wonder if I should change that to equal 12ths all year, or move to the 2nd half kind of thing.

But, on a related note, I have other dollars I need to get growin', maybe in Betterment or some shit.

Thanks for the insights!

16   c1561490   2016 Jul 20, 4:13pm  

CL says

Is the bottom one, simply "all shares bought in January"?

yup.

17   RWSGFY   2016 Jul 20, 4:52pm  

CL says

I've maxed out since back when I was poor, and continue to do so. As time progressed, what used to be a same sized contribution each month has turned into getting all of it in in the first half of the year.

Is there employer match? Does it stop when your contributions stop? You need to make sure you don't leave any of these money on the table when you max out early.

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