Unsure what to do with my uninvested 401k contributions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
softmax
Posts: 173
Joined: Tue Feb 04, 2020 1:27 am

Unsure what to do with my uninvested 401k contributions

Post by softmax »

The stock market started to fall significantly shortly before my last paycheck so I paused auto investing my 401k contributions (both pre-tax and mega backdoor) to Vanguard target funds. I might be a bit market timing but as of now things are okay. 

My last paycheck came with my bonus last year which I contributed 100% to my 401k account, so now I have ~$15k cash uninvested in my 401k account. I also did my backdoor for both 2019 and 2020 almost at the same time so I have another $12k uninvested in my Roth IRA.

Now the obvious question is, when should I invest this cash? People would say "stick to your plan" but I really just started working and investing last year so I haven't yet formed a plan that I'm unwilling to change. I'm also not interested in buy low now and sell high later that kind of market timing.

I can think of two options now:
1) Just DCA over a period of a month and don't look at it ever again.
2) Wait until there's no obvious negative news (e.g., covid-19) and the market has been "stabilized" for a month. 

I'm personally inclined to the second option because:
1) If it's going to be a recession, why enter now? We're certainly not yet at the bottom.
2) If it's going to be bull market again, missing one or two months sounds just fine?

What would you recommend?
Triple digit golfer
Posts: 6196
Joined: Mon May 18, 2009 5:57 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by Triple digit golfer »

Invest it now. Your goal is to invest it, so do that.
lakpr
Posts: 6720
Joined: Fri Mar 18, 2011 9:59 am

Re: Unsure what to do with my uninvested 401k contributions

Post by lakpr »

One solution could be to first dump it in a 50:50 allocation ratio. That way, whichever way the market moves, you will always be half right. So in a sense you will establish a certain "base".

Then over the next 3 to 6 months, move towards your target allocation by selling bonds and investing in stocks. Stop when you feel too queasy to invest more in stocks, that is your true risk tolerance.
User avatar
F150HD
Posts: 3448
Joined: Fri Sep 18, 2015 7:49 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by F150HD »

may want to put your age in your first post. big difference in replies if you're 75 vs 25.

assuming you're 25, the $$ won't be touched for nearly 50 years....
z3r0c00l
Posts: 2008
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Unsure what to do with my uninvested 401k contributions

Post by z3r0c00l »

softmax wrote: Tue Mar 10, 2020 1:28 am I'm also not interested in buy low now and sell high later that kind of market timing.
Too bad, that is how you make money on stocks. Not the market timing now, but the buying low to sell high later. You are doing market timing now so clearly you are interested in it.
softmax wrote: Tue Mar 10, 2020 1:28 am I can think of two options now:
1) Just DCA over a period of a month and don't look at it ever again.
2) Wait until there's no obvious negative news (e.g., covid-19) and the market has been "stabilized" for a month. 
There is a third, better option, which is to invest it all yesterday. Literally yesterday, it turns out, would have been a great time to dump the money in. You would be up perhaps $600 today on that move alone. Why would you wait for stocks to go up to invest? By the time the news gets good, stocks will already have gone up. And you will find yourself regretting not putting the money in sooner.
softmax wrote: Tue Mar 10, 2020 1:28 am I'm personally inclined to the second option because:
1) If it's going to be a recession, why enter now? We're certainly not yet at the bottom.
2) If it's going to be bull market again, missing one or two months sounds just fine?

What would you recommend?
It is going to be a recession most likely, and that may have already been priced into stocks. You don't have any reliable information about the future and so should invest now. Missing a few good months isn't fine if you keep doing this sort of thing for years to come. It will cost you thousands of dollars. Good thing is, $15,000 is not a huge amount of money considering a lifetime of earning. By the time you save for 10+ years you wont even flinch at risking 15K in the market. Wait 'till you have 10 years of earnings saved up and see how a bear market feels.
User avatar
ruralavalon
Posts: 20155
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Unsure what to do with my uninvested 401k contributions

Post by ruralavalon »

Just invest your 401k cash now. Get it over with, turn off the news, and get back to work.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
tdmp
Posts: 81
Joined: Sat Mar 09, 2019 10:12 am

Re: Unsure what to do with my uninvested 401k contributions

Post by tdmp »

softmax wrote: Tue Mar 10, 2020 1:28 am
I'm personally inclined to the second option because:
1) If it's going to be a recession, why enter now? We're certainly not yet at the bottom.
2) If it's going to be bull market again, missing one or two months sounds just fine?

What would you recommend?
I recommend you invest base on your IPS.
1) How do you know when the bottom is? I don't. Warren Buffet doesn't. And if John Bogle were still alive, he wouldn't either. As a long-term investor, I don't recommend investing on "gut-feeling."
2) Missing 1 or 2 months? can have devastating consequences, depending on how market behaves. I just don't know how market behaves.
https://www.thesimpledollar.com/investi ... r-returns/
https://thebamalliance.com/blog/more-mo ... n-in-them/
carmonkie
Posts: 315
Joined: Fri Jun 29, 2018 4:31 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by carmonkie »

Your decision is pretty simple since you are investing in Target funds. Just dump it all in there and let the fund do its thing. If you were self directing I would say look at your AA and direct money where is needed, most likely an S&P or Total Stock Fund or Int Fund.

I have uninvested cash in my 401(k) sitting on a Money Market fund because they are about to offer the Fidelity Bond Fund equivalent to VG Total Bond Fund and once it openes money goes there. I was treating this MM as part of my bond allocation so it had a purpose...
User avatar
goingup
Posts: 3971
Joined: Tue Jan 26, 2010 1:02 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by goingup »

Get invested as soon as possible.

I think it's a mistake to interrupt automatic investing. The best feature of a 401K is automated periodic investing--in good times and bad.

Waiting for news to stabilize or a bull market to begin again is not a good plan at all. Turn the automatic investing back on and let it do it's thing! :beer
Elysium
Posts: 3282
Joined: Mon Apr 02, 2007 6:22 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by Elysium »

OP,

You should stay out for a month or two until you are sure all bad news has passed. What's the worst that could happen, you would lose out on the gains if the recovery happens quickly, but you will learn an important lesson. Every time there is some really bad news or a "this time is different feeling" you should try this, then compare results with being fully invested, after you have done this enough times you'll figure what was the right strategy.

Hint: being fully invested will almost guaranteed to result in better log term returns, but sometimes you need to learn it for yourself instead of someone telling you.
Topic Author
softmax
Posts: 173
Joined: Tue Feb 04, 2020 1:27 am

Re: Unsure what to do with my uninvested 401k contributions

Post by softmax »

goingup wrote: Tue Mar 10, 2020 9:50 am Get invested as soon as possible.

I think it's a mistake to interrupt automatic investing. The best feature of a 401K is automated periodic investing--in good times and bad.

Waiting for news to stabilize or a bull market to begin again is not a good plan at all. Turn the automatic investing back on and let it do it's thing! :beer
OP is 28, working in tech so age could be an issue. I'm planning to retire early (55-ish).

My 401k isn't configured to be the normal periodic investing because I maxed the contribution percentage of each paycheck so that I could maximize the contribution in the first few months every year. My bonus also goes 100% to 401k. The original intention was to get the money into the market early and prevent myself from overspending. But I made this decision under the assumption that the market is not super volatile like today.
MotoTrojan
Posts: 10727
Joined: Wed Feb 01, 2017 8:39 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by MotoTrojan »

“Buy low low and sell high (in retirement)” is not market timing, anything else is though.
MotoTrojan
Posts: 10727
Joined: Wed Feb 01, 2017 8:39 pm

Re: Unsure what to do with my uninvested 401k contributions

Post by MotoTrojan »

softmax wrote: Tue Mar 10, 2020 11:53 am
goingup wrote: Tue Mar 10, 2020 9:50 am Get invested as soon as possible.

I think it's a mistake to interrupt automatic investing. The best feature of a 401K is automated periodic investing--in good times and bad.

Waiting for news to stabilize or a bull market to begin again is not a good plan at all. Turn the automatic investing back on and let it do it's thing! :beer
OP is 28, working in tech so age could be an issue. I'm planning to retire early (55-ish).

My 401k isn't configured to be the normal periodic investing because I maxed the contribution percentage of each paycheck so that I could maximize the contribution in the first few months every year. My bonus also goes 100% to 401k. The original intention was to get the money into the market early and prevent myself from overspending. But I made this decision under the assumption that the market is not super volatile like today.
You won’t retire early with this attitude.
Topic Author
softmax
Posts: 173
Joined: Tue Feb 04, 2020 1:27 am

Re: Unsure what to do with my uninvested 401k contributions

Post by softmax »

lakpr wrote: Tue Mar 10, 2020 5:05 am One solution could be to first dump it in a 50:50 allocation ratio. That way, whichever way the market moves, you will always be half right. So in a sense you will establish a certain "base".

Then over the next 3 to 6 months, move towards your target allocation by selling bonds and investing in stocks. Stop when you feel too queasy to invest more in stocks, that is your true risk tolerance.
Sounds very do-able. Thanks!
Half right is just good enough for me.
Post Reply