Tag Archives: 401k

My 401k Is Still Under Water So I’m Using Dollar Cost Averaging To Bring It Back Up

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I confess, my 401k portfolio was invested too aggressively in 2008.  I’m still down big as the chart shows below: (Ouch, yes it hurt me just to look at it)

401KBalance2008_and_2009

Yes, the cumulative rate-of-return from the beginning of 2008 to the end of 2009 is -18.6%.  Looks pretty bleak for me huh…  So what did I do in 2008-2009 to rectify the problem?  I increased my contribution rate to the maximum percentage that I’m allowed to.  So as the market was going down, I was hoping to take advantage of a concept call dollar-cost averaging.

What is Dollar-cost averaging?  Well if you allocate a constant amount of money for buying a security (stocks, bonds, mutual funds, ETFs… etc) in a measured time period (for example, quarterly), it enables you to buy more shares in a bear market (or less in a bull market) of that security.  So when the market is declining, you buy more shares of a security, and that’s what I’ve been banking on.  Now that we’ve had a decent run-up in the valuation of the stock market, I would be more hesitant now…

Let’s me give example.  Say, I buy $100 dollars worth of a stock (let say BAC) every once a quarter (random purchase date)…

So that means that during the following time periods I bought the following shares:

Amount
Price of the Amout of Cumulative Value of
Invested Date BAC Stock Shares Shares Shares
100 12/03/08 34.48 2.9 2.9 99.99
100 01/23/09 6.24 16.03 18.93 118.1
100 05/01/09 8.7 11.49 30.42 264.65
100 10/30/09 14.58 6.86 37.28 543.52
400 01/02/10 15.06 37.28 37.28 561.42

This would be about a 40% return on my investment (If I did this, which I didn’t of course…, but it’s a good example).

So, yes I’m not happy that I’m still down, but taking everything as a whole, I’m doing okay, even if I am still down from my portfolio high at the end of 2007!

No 401K 2010 Conversion to a Roth IRA for Me

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I was hoping in 2010 that I could roll my entire 401k balance over to a traditional IRA, and then from there do another rollover to a ROTH IRA.

The advantage of doing it in 2010, is that you can spread the contribution amount over multiple years (3 to be exact) to reduce the tax hit.

So for the first step.)  I was wondering if I could roll over my 401K balance to a tradition IRA while I am still employed at my company where my 401k resides?

Why did I want do this process in 2010 instead of now or earlier?

If I were to do the conversion in an earlier year (let’s say 2009), the tax hit would be too high, because it would bump me up to a higher Marginal Tax rate (actually a few higher)…  And I hate to pay more taxes that I have to.

Sad day for me…  Oh well, 😐