Does timing the market make sense in this situation?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
password-is-taco
Posts: 12
Joined: Fri Jun 05, 2020 12:45 am

Does timing the market make sense in this situation?

Post by password-is-taco »

(Please keep politics out of this thread. Thanks in advance!!!)

I'm leaving my current job in early February. I am not fully vested in the employer's 401(a) retirement plan, so I receive 67% of the value of my account on my date of separation (2/2). At that point, the standard options for what to do with the account will kick in: rollover, lump-sum distribution, etc...

I'm young, so my 401(a) from this employer is currently invested 100% in a total stock market index fund. My fear is that events on or around 1/20 may cause extreme volatility in the stock market between now and early February. Specifically, that the value of my account may drop sharply over the next few weeks and not recover/stabilize before 2/2 when 67% of my account vests.

Question:
Is there any benefit to temporarily moving the money in my 401(a) account out of the market and into cash, then immediately moving it back into the market after my portion vests?

My (possibly flawed) logic behind this move would be:
  • My account is currently worth $9,000. If I lock in that value now, $6,000 is vested.
  • If I let it ride until 2/2 and my account value drops to $8,000, only $5,360 will vest.
User avatar
galawdawg
Posts: 1802
Joined: Thu Dec 14, 2017 12:59 pm
Location: Georgia

Re: Does timing the market make sense in this situation?

Post by galawdawg »

You might want to read the posts from those who went to all cash right at the beginning of November. I wonder how that worked out for them?
User avatar
KingRiggs
Posts: 715
Joined: Wed Dec 12, 2018 12:19 pm
Location: Indiana

Re: Does timing the market make sense in this situation?

Post by KingRiggs »

The difference between those two amounts, while now looking big to you, will be a miniscule difference at retirement age.

Stay in the market.
Advice = noun | Advise = verb | | Roth, not ROTH
User avatar
arcticpineapplecorp.
Posts: 7117
Joined: Tue Mar 06, 2012 9:22 pm

Re: Does timing the market make sense in this situation?

Post by arcticpineapplecorp. »

password-is-taco wrote: Wed Jan 13, 2021 10:34 am Question:
Is there any benefit to temporarily moving the money in my 401(a) account out of the market and into cash, then immediately moving it back into the market after my portion vests?

My (possibly flawed) logic behind this move would be:
  • My account is currently worth $9,000. If I lock in that value now, $6,000 is vested.
  • If I let it ride until 2/2 and my account value drops to $8,000, only $5,360 will vest.
nothing wrong with what you're doing per se (and I'm strongly against market timing). But I see this more about trying to lock in your current vested amount rather than taking risk with your current vested amount.

small potatoes either way. you're thinking if the market falls 11% you stand to lose $640. if the market goes up instead you stand to lose (out on a gain) but the gain can't be that much either. Say the market goes up 11%. Account would be worth $10,000 and $6700 would vest. That's a $670 gain from now.

So if you're willing to give up making a few hundred dollars in order to NOT lose a few hundred dollars, then you've made your decision.

it's not life altering either way, but investors don't like uncertainty. You're locking in the certainty of walking away with $6000 instead of dealing with the uncertainty of how much/whether you could lose some or gain some.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
jrbdmb
Posts: 611
Joined: Tue Oct 06, 2015 4:27 pm

Re: Does timing the market make sense in this situation?

Post by jrbdmb »

In late 2016 I was moving my 401K from Employer A to Employer B (Employer B had previously purchased my organization from Employer A). A direct transfer of my 401K funds was not possible, so my 401K was going to be in cash for a short period of time (if i recall it turned out to be about three weeks). This period overlapped with the 2016 Presidential Election, and the conventional wisdom was that the market would either remain steady or drop depending on who won. As it turned out I missed out on a 10% post-election rally.

Nobody knows nuthin. That being said, locking in your vested portion now while the market is near an all-time high isn't the worst course of action; just don't think you can predict the future direction of the market.
User avatar
KneePartsPro
Posts: 92
Joined: Tue Dec 29, 2020 11:52 am

Re: Does timing the market make sense in this situation?

Post by KneePartsPro »

My best guess is that the week surrounding 1/20 is already priced into the market. That being said, your strategy seems reasonable even if it's immaterial over the long term. :happy
I can tell you almost anything about artificial knees used in knee replacement, and almost nothing about investing.
User avatar
ruralavalon
Posts: 20223
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Does timing the market make sense in this situation?

Post by ruralavalon »

galawdawg wrote: Wed Jan 13, 2021 10:39 am You might want to read the posts from those who went to all cash right at the beginning of November. I wonder how that worked out for them?
And also read the threads around November 2016 about fears of loss following that election. Anyone who went to cash based on those fears lost money.

Over the long haul this will be these immaterial for you.
Last edited by ruralavalon on Wed Jan 13, 2021 11:26 am, edited 2 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
User avatar
JoeRetire
Posts: 6681
Joined: Tue Jan 16, 2018 2:44 pm

Re: Does timing the market make sense in this situation?

Post by JoeRetire »

password-is-taco wrote: Wed Jan 13, 2021 10:34 amMy fear is that events on or around 1/20 may cause extreme volatility in the stock market between now and early February. Specifically, that the value of my account may drop sharply over the next few weeks and not recover/stabilize before 2/2 when 67% of my account vests.

Is there any benefit to temporarily moving the money in my 401(a) account out of the market and into cash, then immediately moving it back into the market after my portion vests?
Other than easing your fears? Probably not.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Fallible
Posts: 7639
Joined: Fri Nov 27, 2009 4:44 pm
Contact:

Re: Does timing the market make sense in this situation?

Post by Fallible »

password-is-taco wrote: Wed Jan 13, 2021 10:34 am ...
My (possibly flawed) logic behind this move would be: ...
Market timing is not about logic, but about prediction, about guessing an unknown future.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Post Reply