Author Topic: 401k Contributions - Accelerate or Dollar Cost Average (DCA)?  (Read 968 times)

foghorn

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401k Contributions - Accelerate or Dollar Cost Average (DCA)?
« on: November 11, 2018, 01:28:06 PM »
As we approach 2019, I wondering the best way to fund my 401k for the year.  Historically, I have contributed enough each pay period (26 pay periods) to hit the maximum contribution by the end of the year. 

However, I am in a fortunate situation where I could put more into the 401k from each check and hit the yearly limit much sooner (maybe late summer or early fall). 

I also max my HSA each year (DCA) and I max my tIRA each year (lump sum).

I have no debt or other major bills.  The drop in take home pay (if I accelerate 401k contributions) will not impact my lifestyle or ability to pay bills. 

My Emergency Fund and Fuck You Fund are also fully funded.   

So, is it better to do this via DCA - or accelerate the process?

I appreciate any thoughts on this topic.

Thanks.

MDM

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jacoavluha

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Re: 401k Contributions - Accelerate or Dollar Cost Average (DCA)?
« Reply #2 on: November 11, 2018, 06:34:34 PM »
Define better. More money? Less regret? Simplicity?

Assuming no change in employer match, statistically lump summing earlier is better. Because on average the market goes up over time, not down.  But over many time periods DCAing would be better. As in would result in more money in the end.

No one knows the future.

I prefer to DCA my 401k.


Boofinator

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Re: 401k Contributions - Accelerate or Dollar Cost Average (DCA)?
« Reply #3 on: November 11, 2018, 09:54:37 PM »
I would DCA, and put what's leftover into taxable. This gives you the opportunity to tax loss harvest throughout the year. Plus, this reduces risk, so even though the expected value is technically less slightly less, risk adjusted I bet it comes out better.

 Plus, as others have mentioned, employer match might be jeopardized

MustacheAndaHalf

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Re: 401k Contributions - Accelerate or Dollar Cost Average (DCA)?
« Reply #4 on: November 12, 2018, 04:32:33 AM »
I don't think there's a big difference in this particular case, because "early fall" and the end of the year are fairly close together.  But in general, "time in the market" is what you want, so earlier is in theory better.

As others point out, some employers match per paycheck, up to a limit.  If your contributions finish before year end, you can lose out on company match, which is significant.

AccidentalMiser

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Re: 401k Contributions - Accelerate or Dollar Cost Average (DCA)?
« Reply #5 on: November 12, 2018, 07:01:39 AM »
I would DCA, particularly if there's a question about the company match and "true up".  Since you're asking, I'm assuming your company trues up.

In my case, my employer does not true up so it's an easy decision for me but I would DCA anyway as part of executing my lifetime financial plan.

MaaS

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Re: 401k Contributions - Accelerate or Dollar Cost Average (DCA)?
« Reply #6 on: November 12, 2018, 09:19:40 AM »
First of all, you're debating between two excellent choices. A big long-term win either way.

I personally contribute as quickly as possible. Being self-employed, this generally means in the first month or two.

My logic:

  • The market goes up more often than not
  • You have more shares at dividend distribution dates