401k and the recession, contribute or not?

[rob_s]

Let's assume:

35 years old
10 years with company
$100k annual salary
10% contribution ($10k)
company 25% match ($2.5k)

(no, these are not my numbers, just nice round and somewhat realistic numbers)

I've heard from two camps on this. The first is that the match is "free money" and you're "stupid not to take it", which are all the traditional arguments in good times, and that "buy low" (meaning, now) is the best bet, and we're obviously still low today compared to the high point several years ago.

The other camp is "yeah but I'm losing $5k/year meaning the match isn't doing me any good".

Which camp are you in? Or a different camp altogether? To put it simply, start with whether or not you'd be contributing today if you were the guy in the example. I'd also like to hear if you were that same guy two years ago (assume all is the same, just 33 instead of 35) would you have been contributing? If you had stopped, would you start back up now?

[austinN4]

I've heard from two camps on this. The first is that the match is "free money" and you're "stupid not to take it", which are all the traditional arguments in good times, and that "buy low" (meaning, now) is the best bet, and we're obviously still low today compared to the high point several years ago.

The other camp is "yeah but I'm losing $5k/year meaning the match isn't doing me any good".
First off, I am much older so I am not contributing. I do not work and have no match.

That said, if you have not been in the market since the 2009 low you have missed huge upside. And if you sold your holdings in 2009 and are much worse off than if you had held on.

Without contributing, I am within a few $ of doubling my 401(k) money off the 2009 low simply by not selling what I had and holding on. The only changes I made to my mutual fund retirement accounts was to move them heavily into bonds in 2009 and back to heavily into stocks at the end of 2010.

I believe in the markets long term. It is very difficult to make money by jumping into and out of the market. The downs are uncomfortable to say the least, but I am old enough to have been through many of them and every single time that was the time to be buying. If you believe in markets long-term, downturns are simply when quality investment are on sale.

It is nearly impossible for the average person to time the markets. And even worse if you are trying to pick individual stocks. As a result, I believe the best strategy is to continue regularily contributing to diversified mutual funds in good times and bad, and by all means take advantage of any match available to you.

When I was working, I contributed the legal max to my 401(k) every year, even though I only received a match on a portion of it. Remember, it isn't just the match - you are contributing your portion pre-tax, which gives you significantly more buying power.

Heck, I even additionally made maximum after-tax contributions every year to either a traditional or Roth IRA, depending on which worked better for me that year.

As a result of the above regular long-term investing over the last 30 years in pre-tax and after-tax retirement accounts, my retirement is grossly overfunded, and I am now spending money like a drunken sailor, having a blast in my retirement and getting ready to buy a second home.

So, basically, you either believe in the power of markets long-term or you don't. If you do, you should have been contributing all along. If you don't, you have no business investing at all.

BTW, we aren't really all that far of the all time high in the DJIA: http://www.the-privateer.com/chart/dow-long.html

[M4arc]

My 401K is killing it and has been for several years now. It took a hit initially in '08 but since then it has done extremely well. I do get company matching and I've been increasing my by 1% every year.

[ForTehNguyen]

reallocated mine to natural resources, commodities, multinational companies away from the govt bond, US consumer based, financial allocations

[Sry0fcr]

Which camp are you in? Or a different camp altogether? To put it simply, start with whether or not you'd be contributing today if you were the guy in the example. I'd also like to hear if you were that same guy two years ago (assume all is the same, just 33 instead of 35) would you have been contributing? If you had stopped, would you start back up now?

If I was the guy in the example I'd definitely be contributing today. If I was that guy 2 years ago I would have upped my contribution if I could afford to lose the cashflow. If I had stopped I would definitely start up again. It's a retirement account, it's going to lose value in a down market. The people in camp #2 are fools unless they're close to retirement and don't have 25 years to wait for things to recover. I fell for anyone in that situation that stopped contributing. You missed out on a huge opportunity. My account is up 10% since 2009.

[ICANHITHIMMAN]

Why not dump it all in to an IRA?

[shootist~]

The other camp is "yeah but I'm losing $5k/year meaning the match isn't doing me any good".

Then the "other camp" has been doing a piss poor job. Even before the crash, the housing bubble was obvious for those who had their eyes open. A heavy cash/bond position starting about '06 and certainly by '07 was a little more than a no-brainer, but not by much.

[austinN4]

Why not dump it all in to an IRA?
If the company has a 401(k) with a match, why even consider putting the investment $ into a IRA?

http://web.finweb.com/retirement/401k-vs-ira-which-is-better.html

[LowSpeed_HighDrag]

My pseudo 401K took a hit a few years ago, but has rebounded since. It has made pretty big increases over the years...

[montanadave]

I'd be contributing. My wife and I have continued to make the maximum contributions to our retirement accounts through thick and thin and, despite the hit a couple of years back, are ahead of the game.

I think the discipline of saving is important, regardless of where you are putting the money. I also think it's important to have a ready-cash reserve sufficient to carry a person through an extended down market. Granted, the interest on my money market accounts and CDs is a joke right now, but I sleep better knowing the money is there.

[militarymoron]

yes, i'd be contributing, now or two years ago.

[orionz06]

I have a similar scenario and have been putting in since day 1 (2008) and seeing how it has grown I am thankful I did. I have about 15-17% of my base salary tossed in between a pension and 401k after it is all said and done.

[sadmin]

I suppose I'm one foot in each camp now. Six years ago I began putting the max in; I took a new job in July of last year and starting over, I'm putting less than half what i was into it. I rolled my old 401K into a riskier setup IRA and withdrew about 10K since I only had to pay the taxes, and paid off on of our cars.

When I was doing the rollover I noticed it gained maybe 1200 over that 5 years, plus the employer contribution. I have my reservations about it all honestly, I feel like I'm just doing it because that's what "a responsible" working man should do, but I don't play the market, never look at it. I'd rather have the money in the short run and worry about saving later. I don't want to get all tinfoil hat here, but where is the economy headed really? Does anyone really expect to take off and recoup?

[Sensei]

Austin4N hit it out of the park - contribute. You can make fund adjustment, but you are better off using the advice of a pro before you do this very often.

[ralph]

A few weeks back I finished reading the Book "Aftershock" by Bob Wiedemer, I'd suggest anyone interested in their retirement take a look. The author and his staff predicted the housing market crash 3yrs in advance..they were spot on. What's coming next is going to be bad..Right now, things look pretty good, things are picking up and you see little tidbits every night on the news on how good the economy is..What we're all seeing is nothing more than the expected "bounce" from last years' quantive easing, this should last until later on this year, possibly until after the elections (At least that's what Obama is hoping) The bottom line is..This country is in debt to the tune of 15 + trillion..We take in (taxes etc,) about 2 Trillion a year, and the debt limit has to upped every year, so they (U.S. Gov't) can spend more..A little simple math tells you this can't go on forever.. Some where between 20-25 trillion is going to be the tipping point, Inflation is coming, every time the fed uses quantive easing, the better the chances are of rising inflation, In the book, they're predicting 2015-16 timeframe for this to start.. And, the end result will be the U.S. defaulting on it's debt.. For those of you that can, some simple things you can do now to be better prepared. If you can, pay off your house, credit cards and any car loans, If you can't pay off your house, and you're in a variable rate morgage, see if you can get into a fixed rate as soon as you can. If possible, look into investing some, not all, of your money into Gold, Sliver, Anyway the book itself dosen't cost alot, I got it on sale and my wife downloaded it on to her Kindle for $10, After reading this book, I'm convinced that the U.S. economy is headed for a big crash..And it's not very far off.. Keep an eye on the Fed..everytime they use QE, That's telling you that they're trying their best to keep the dollar bubble from popping, Bubbles (like housing for example) rise for awhile, but sooner or later, they start falling and eventually pop...And when the dollar bubble pops, default is right behind it..

[Caeser25]

I would do research on what options your employer allows you to invest your 401k in. You might be able to do better with a Roth ira where you won't even miss that 25% match. If it were a 100% match I'd say definitely contribute. Ralph I totally agree but I'm not putting all my eggs in one basket. There were many that predicted the bubbles and called nut jobs and conspiracy theorists. Today many are still called nut jobs, conspiracy theorists and fear mongerers by those that don't know dick about the history of fiat money and currency collapses. How some of those people still have jobs is beyond me. I'd've pulled a Sam Rothstein "you're either too ****ing stupid to see what was going on or you were in on it. Either way you're out."

[The_War_Wagon]

DUMPED my 401k in 2006 and went with precious metals. NO regrets. :cool:

[ralph]

I would do research on what options your employer allows you to invest your 401k in. You might be able to do better with a Roth ira where you won't even miss that 25% match. If it were a 100% match I'd say definitely contribute. Ralph I totally agree but I'm not putting all my eggs in one basket. There were many that predicted the bubbles and called nut jobs and conspiracy theorists. Today many are still called nut jobs, conspiracy theorists and fear mongerers by those that don't know dick about the history of fiat money and currency collapses. How some of those people still have jobs is beyond me. I'd've pulled a Sam Rothstein "you're either too ****ing stupid to see what was going on or you were in on it. Either way you're out."

Yes, I would'nt put all my eggs in one basket either..that is foolish..Myself, I planning on retiring in about 3yrs, And frankly, I'm worried about the future..I have two pension plans, and a annunity fund that I have some control over,50% of which is in a money market fund..I check the annunity fund everyday through the week, (M-F) to see how it's doing. I just hope the people in charge of my pension plans, are paying attention..I'd love to get into gold, but I simply can't afford it, However, Silver is a interesting prospect, and it's still affordable, In the book I read, they predict Silver could go as high as $180 an ounce,making the $33-34 a ounce it is now a bargin.. One has to remember too, that both Gold and Silver are bubbles themselves, It's a good time to get in on it now, But like any other bubble, they too will start to fall and eventually collaspe, although that's could be as far off as 10-12yrs from now. One just has to keep an eye on it and know when to get out. Alot of you guys on this board are alot younger than me, So, you have a serious advantage..Time.. I do honestly believe that if all of what I read comes to pass, We, as a country are going to have a rough road to hoe, for a long time after. But,on the bright side, some looong overdue changes in how both Wall st and Washington operate will finally happen..And we'll be a better country because of it..

[Clint]

Here is my plan for semi-active retirement investing.

First, always contribute and get the free match.

But, direct those automatic contributions to the money market / cash part of your portfolio.

This serves two purposes- 1) you always contribute and get the match and 2) you're not buying mutual funds on the same Friday that everybody else is. ( which drives up the price )

Then semi - actively manage that portfillio.

What you buy and sell can be as simple as an S&P500 index fund.

Some plans allow a brokerage account option that opens many more options.

Do your research , follow a good investing blog, get a pulse on the market.

When you think the market is headed up in the intermediate term, buy on short term dips when thing are on sale.

When you think the market is headed down in the intermediate term, sell and go to cash to avoid a large haircut.

No sense sticking around while Rome burns.

When things bottom out, put that dry powder (cash) to work and buy cheap.

[militarymoron]

DUMPED my 401k in 2006 and went with precious metals. NO regrets. :cool:

what? don't you remember the 'rip van winkle caper' episode from the original twilight zone series? :p

[a1fabweld]

With our family being single income (wife is staying home to raise the kids for a few more years), I don't have a bunch of extra money to gamble with & throw into stocks. The wife & I had a few different 401's from years ago. They are damn near worthless at this point. What money I have is invested in tangible goods or in the sock drawer. I honestly don't trust anyone with my hard earned cash at this point.

[Redmanfms]

25% matching :blink:



Ummmm, yeah I'd contribute max if my employer was giving me 25 cents on the dollar, I'd be ****ing crazy not to. Contribute the money and throw it to bonds, money market, or cash funds if you are worried what the market will do.