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Is now a good time to increase 401k contribution

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Is now a good time to increase 401k contribution

Old 07-24-08, 10:41 AM
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Is now a good time to increase 401k contribution

This probably belongs on a finance forum, but if anyone is good in that area, I am curious about 401k.

I'm 28, so I'm in it for the long haul, This spring I recieved a healthy pay increase and July 1 was one of the quarterly 'adjustment periods', so I increased my weekly contribution from 7% to 10% of my check (eventually I want to max it out at 15%).

Right now of course I am taking a bath due to the stock market struggles, and have not seen a significant increase in my overall balance in the account since last fall (its actually worth less today than in September/October 2007).

My question: is it good or bad to increase my contribution during such times of economic turmoil, or does it not really matter since I am in this for 40 years or so?

Also, we have a roth 401k option, when should I consider opening that and contributing into that? After I've maxed out my weekly contribution to my traditional 401k?

Last edited by MACD23; 07-24-08 at 10:43 AM.
Old 07-24-08, 10:44 AM
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I would invest where you can, but remember there is always a risk of losing money. Last year I lost money, the year before I gained more money than I lost last. It just depends on the market. It looks like shit right now, but you never know when it's going to bounce back. I don't invest nearly as much as you do, but I wouldn't say it's a bad idea. I wish I had solid advice to offer, but I don't.
Old 07-24-08, 10:48 AM
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or does it not really matter since I am in this for 40 years or so?
Correct. Take advantage of the prices now. You have a very long term time horizon.
Old 07-24-08, 10:48 AM
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Originally Posted by MACD23
This probably belongs on a finance forum, but if anyone is good in that area, I am curious about 401k.

I'm 28, so I'm in it for the long haul, This spring I recieved a healthy pay increase and July 1 was one of the quarterly 'adjustment periods', so I increased my weekly contribution from 7% to 10% of my check (eventually I want to max it out at 15%).

Right now of course I am taking a bath due to the stock market struggles, and have not seen a significant increase in my overall balance in the account since last fall (its actually worth less today than in September/October 2007).

My question: is it good or bad to increase my contribution during such times of economic turmoil, or does it not really matter since I am in this for 40 years or so?

Also, we have a roth 401k option, when should I consider opening that and contributing into that? After I've maxed out my weekly contribution to my traditional 401k?
I am in a similar situation. I am 25 and I recently stopped my contributions (for other reasons, but I will be going back soon). But there are a few things you need to consider.

Does your company match? Mine does up to 6%. So what I did was, I made a 6% contribution and took the 6% match at the end of the year. Generally I make it a rule not to go over what the company match is.

Second, how many different funds can you contribute to? The dollar is weak on the international side, so I was losing money, even though there was a potential for a huge return. I put my money in the S&P 500 Index fund, which was doing quite well even with the recession.

Opinions vary. Some will tell you to keep it in high risk since you are young...other will tell you to spread it out since the economy is weak. Unless your 401k gets stolen, either or should work at this point. Having a Roth is also a good thing. Since that money is post tax.
Old 07-24-08, 10:48 AM
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Invest as much as you can, do it each paycheck, and then forget about it. Timing the market is impossible. Long-term, the little bumps like we are having now will not matter.
Old 07-24-08, 11:06 AM
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Originally Posted by JWAR
I would invest where you can, but remember there is always a risk of losing money.
When you say 'losing money', that is hopefully just temporary though, right? I mean when the stock price plummets on a fund and my value goes way down, I 'lose' money but when the market returns and the price surges I gain back what I lost since I am still holding all the shares. So hopefully in the long run I didn't lose anything at all, right?


Originally Posted by macnorton
I am in a similar situation. I am 25 and I recently stopped my contributions (for other reasons, but I will be going back soon). But there are a few things you need to consider.

Does your company match? Mine does up to 6%. So what I did was, I made a 6% contribution and took the 6% match at the end of the year. Generally I make it a rule not to go over what the company match is.
Your company matches dollar for dollar up to 6%? Thats incredible. As a holiday bonus my company gives us 25% of what we contributed throughout the year, so the more we put in, the more they give us. Its decent.

Last edited by MACD23; 07-24-08 at 11:09 AM.
Old 07-24-08, 11:07 AM
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Saving money is never a bad thing. If you are worried about risk, then put a certain percentage of your contribution in a money market fund. The returns will be smaller. Don't do much of it, though -- you are young enough to be able to handle the risk.
Old 07-24-08, 11:10 AM
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I would have to disagree that timing the market is impossible I've been doing it for the last year and I have seen the return on my investment increase... a lot! I've made about 20% on my retirement fund this year even with the market being in the crapper. (And not to mention I have limited funds to play with)

I would put in as much as you can but put it in a safe account like a money market account and then wait for the smoke to clear THEN put it in a stock account. Stocks are fairly cheap now but according to popular belief there is going be another major sell off when more banks go belly up.
Old 07-24-08, 11:10 AM
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When you say 'losing money', that is hopefully just temporary though, right? I mean when the stock price plummets on a fund and my value goes way down, I 'lose' money but when the market returns and the price surges I gain back what I lost since I am still holding all the shares. So hopefully in the long run I didn't lose anything at all, right?
Paper gains/losses are not realized until a transaction is closed.

The value of your funds will always fluctuate. With a 40 year time horizon you will be buying more when the prices are down. Think longer term, check the values monthly and you will be fine.
Old 07-24-08, 11:20 AM
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Originally Posted by MACD23
Your company matches dollar for dollar up to 6%? Thats incredible. As a holiday bonus my company gives us 25% of what we contributed throughout the year, so the more we put in, the more they give us. Its decent.
Yes. One of the few things they actually do right. I do not get any kind of bonus though.
Old 07-24-08, 11:49 AM
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Originally Posted by Lateralus
I would have to disagree that timing the market is impossible I've been doing it for the last year and I have seen the return on my investment increase... a lot! I've made about 20% on my retirement fund this year even with the market being in the crapper. (And not to mention I have limited funds to play with)

I would put in as much as you can but put it in a safe account like a money market account and then wait for the smoke to clear THEN put it in a stock account. Stocks are fairly cheap now but according to popular belief there is going be another major sell off when more banks go belly up.
Good for you. You are smarter than 99% of portfolio managers.

To the OP, a question: How much debt do you have (including student loans, CC, car, etc.)? I would advise paying all of this off before investing heavily in a company 401 (k) plan that only matches 25% as a year end bonus.
Old 07-24-08, 11:54 AM
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Originally Posted by orangecrush18
Good for you. You are smarter than 99% of portfolio managers.

To the OP, a question: How much debt do you have (including student loans, CC, car, etc.)? I would advise paying all of this off before investing heavily in a company 401 (k) plan that only matches 25% as a year end bonus.

Thats a great point. I owe $2500 in student loans, and $8k in credit card debt (I know). I'm also working on paying off the CCs as well.
Old 07-24-08, 12:52 PM
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Originally Posted by MACD23
Thats a great point. I owe $2500 in student loans, and $8k in credit card debt (I know). I'm also working on paying off the CCs as well.

Ugh that 8k of CC debt really changes things, I would pay that off first!
Old 07-24-08, 12:53 PM
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Originally Posted by MACD23
This probably belongs on a finance forum, but if anyone is good in that area, I am curious about 401k.

I'm 28, so I'm in it for the long haul, This spring I recieved a healthy pay increase and July 1 was one of the quarterly 'adjustment periods', so I increased my weekly contribution from 7% to 10% of my check (eventually I want to max it out at 15%).

Right now of course I am taking a bath due to the stock market struggles, and have not seen a significant increase in my overall balance in the account since last fall (its actually worth less today than in September/October 2007).

My question: is it good or bad to increase my contribution during such times of economic turmoil, or does it not really matter since I am in this for 40 years or so?

Also, we have a roth 401k option, when should I consider opening that and contributing into that? After I've maxed out my weekly contribution to my traditional 401k?
Heh, I had to do a double take to make sure I did not create this thread. I am 28 and started out by contributing 7% and after my raise this year, I bumped it to 10%. My company also matches up to 6% as well. Freaky

My opinion, I just started in Sept 07 and as of now I have about $6100 in my account. I recently just started tracking it daily for the last month or so, I have been averaging about $100 a week with some ups and downs on a daily basis. I am in this for the long haul as well so the market turmoil dosen't really bother me as much as some others.
Old 07-24-08, 01:19 PM
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Originally Posted by MACD23
Thats a great point. I owe $2500 in student loans, and $8k in credit card debt (I know). I'm also working on paying off the CCs as well.
This isn't a popular opinion, but I would stop ALL contributions to your 401 (k) and pour all of that money into debt payment. Once your CC and student loans are paid off, I would cut up the CC and start towards a goal of an Emergency savings of 4ish months of salary. Then, I would contribute to the 401 (k). How much depends on your investment options and up to what % they will give you in bonuses. If your investment options suck and they don't guarantee any bonuses, I would look toward an IRA and Roth IRA account with Vanguard or the like.
Old 07-24-08, 01:20 PM
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Originally Posted by Lateralus
Ugh that 8k of CC debt really changes things, I would pay that off first!

I know, $4600 is in a no interest til May 2009 account ( i just transferred it to the new card and closed the old card). I plan to have my CCs paid down to under 2k within the year. Basically almost all of my extra income is going to 401k and CC debt, with a little extra for fun etc...
Old 07-24-08, 01:27 PM
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Get that CC debt under control, man. Don't know what your rate is on those, but it is probably higher than what you are making in your investments. Not saying to quit your contributions, but get that CC debt taken care of.
Old 07-24-08, 01:48 PM
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Originally Posted by Lateralus
I would have to disagree that timing the market is impossible I've been doing it for the last year and I have seen the return on my investment increase... a lot! I've made about 20% on my retirement fund this year even with the market being in the crapper. (And not to mention I have limited funds to play with)

I would put in as much as you can but put it in a safe account like a money market account and then wait for the smoke to clear THEN put it in a stock account. Stocks are fairly cheap now but according to popular belief there is going be another major sell off when more banks go belly up.

Damn. What funds are you in?
Old 07-24-08, 02:02 PM
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Originally Posted by macnorton
Does your company match? Mine does up to 6%. So what I did was, I made a 6% contribution and took the 6% match at the end of the year. Generally I make it a rule not to go over what the company match is.
Make sure you kick in at least enough to maximize the company match.

My company gives us 3%, then does a 50% match on up to 6%. So, you'ld want to put in 6% of your own (minimum) to get their full contribution of 6%.

I contribute 14% on my own, for an even 20% total when combined with the match.
Old 07-24-08, 02:04 PM
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Originally Posted by kvrdave
Get that CC debt under control, man. Don't know what your rate is on those, but it is probably higher than what you are making in your investments. Not saying to quit your contributions, but get that CC debt taken care of.
But putting my money in a paper bag under my bed has a better return right now than pretty much any of the 401K investment options (at least in my plan).

I don't see a problem in contributing a bit into the 401k, though most of it should go to debt (if you have a limited 0% CC rate, I'd at least keep the money in a savings or money market account that will release the money when it's time to pay up, as I'm not sure there will be many 0% deals coming in the near future).
Old 07-24-08, 02:18 PM
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Originally Posted by Red Dog
Damn. What funds are you in?

he's probably looking at the charts and some technical indicators for buy and sell signals. not 100%, but they are pretty accurate
Old 07-24-08, 02:23 PM
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Originally Posted by al_bundy
he's probably looking at the charts and some technical indicators for buy and sell signals. not 100%, but they are pretty accurate
Maybe, but it seems like many experts do the same thing are are not up 20% over a year.
Old 07-24-08, 02:30 PM
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it's a lot easier to do when you are small fry and can buy and sell your entire portfolio in one shot instead of a fund manager with $10 billion under management and it takes you 3 months to build up a position in one stock. this is why most funds hold for a long time.

i have a textbook on the subject and it uses charts from 1997 - 1998. nothing really changes in the stock market
Old 07-24-08, 02:38 PM
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Originally Posted by al_bundy
it's a lot easier to do when you are small fry and can buy and sell your entire portfolio in one shot instead of a fund manager with $10 billion under management and it takes you 3 months to build up a position in one stock. this is why most funds hold for a long time.

i have a textbook on the subject and it uses charts from 1997 - 1998. nothing really changes in the stock market
It seems like there is a sweet spot for the amount of money you need to get really good returns. If you have too little, you have to pass on many opportunities. Too much, you have to make a lot of $$$ to make a good rate (a problem Buffet has lamented).
Old 07-24-08, 06:18 PM
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Originally Posted by al_bundy
he's probably looking at the charts and some technical indicators for buy and sell signals. not 100%, but they are pretty accurate

That is exactly what I am doing and it took me a year of watching the stock market and reading investment blogs to finally get enough in-site to do this on my own and it has paid off well. (so far)

I pulled out of the market and went 100% cash when the DOW hit 14k in July of last year and that in itself is one of the best moves I have made. I just wanted to play it safe as I knew the market was going to tank so I left it sit until I ran out of patience in March of 08 when Bear Stearns went belly up I threw my retirement account into stocks. I followed the rally until the DOW hit it's 200 Moving Average and went back in to cash.

Two weeks ago I jumped back in the market again when Fannie and Freddie kicked and I have seen a 7% increase in two weeks. (Well until today!) but I still think this bounce has some legs and I will continue to go long for the immediate future but I do see an opportunity for a double bottom and the possibility of the DOW eventually hitting 10k, 9k or even 8k.

The funds I have available are a combination of small cap, mid cap, large cap, real estate, hard assets, bonds and money market. I would have done better but I moved my money in to short term gov bonds but I did not realize that gov bonds don't do shit when there is inflation! Lesson learned!

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