Comments on: 401k Front Loaded versus Incremental Contributions

By: jim

jim — Thu, 12 Jan 2006 22:52:27 +0000

That just doesn’t sound right… or fair even.

By: Neo

Neo — Thu, 12 Jan 2006 21:34:05 +0000

With my company, for every dollar you contribute, (up to $4,000 or 6% of your pay, whichever is greater), they will contribute $0.50 to your account. I actually just posted how I lost out on a few dollars because I maxed out too early.

http://neos-nest-egg.blogspot.com/2006/01/missed-out-on-full-401k-matching.html

Neo

By: jim

jim — Thu, 12 Jan 2006 18:48:11 +0000

Let’s say you’re a 3% match on 6% contribution plan, if you put all 6% of your yearly salary in January then they’ll only give you 3%/12 in January and nothing in Feb – Dec? If that’s the case, that’s BS. I can understand them giving you 3%/12 in each month (even if you contribute $0 Feb – Dec) but to not give you the match is probably illegal.

By: Neo

Neo — Thu, 12 Jan 2006 18:19:35 +0000

I do front load my Roth IRA but since I don’t make enough to do the same with my 401(k), I have to settle for the incremental contributions. One reason that incremental contributions would be preferred is because with some company matching programs, they will only provide the match is the contributions are disbursed across the year. So doing the lump contribution might cause you to lose out on $2,000 (in my case).

Neo

By: Joe

Joe — Sat, 02 Apr 2005 20:50:54 +0000

I just came across an awesome calculator that compares lump sum and dollar cost averaging in an S&P 500 index fund over a 12 month period, starting in any month since January, 1950. The calcualtor is very sophisticated, even giving credit for interest earned on the money waiting to be dollar cost averaged.

http://www.moneychimp.com/features/dollar_cost.htm

As would be expected, lump sum investing usually “wins”.

By: jim

jim — Thu, 31 Mar 2005 22:55:02 +0000

I did a search on Google and found a print of their study, it's pretty good. Lump Sum Beats Dollar-Cost Averagingby Richard E. Williams, Ph.D., and Peter W. Bacon, DBA, CFP

By: Joe

Joe — Thu, 31 Mar 2005 21:21:55 +0000

A study by Peter Bacon and Richard Williams, professors at Wright State University, tracked lump sum vs. dca (dollar cost averaging) over 780 different 12-month periods from 1926 through 1991. They found that an investor would have done better 64.5% of the time by investing his or her money in a lump sum.

Dollar cost averaging is great because it’s the only way many of us can afford to invest, and it builds discipline. But, as you point out, it has no magical qualities. Assuming the stock market will continue to trend upwards over long periods of time (hopefully a safe assumption), it’s usually better to be “in” as early as possible.

Great post, jim.