Hello all -- I hope you find this interesting. I had a lot of fun digging it out and putting it together. I'll present data first, then conclusions, then the story if I'm still awake
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Well, dollar cost averaging is not all bad. It's certainly true that buying stocks now is much better value than buying them a year ago.
The smart thing to have done with a 401k would have been to shift it a year ago from mostly stocks to mostly bonds or T bills. It would be worth almost twice as much now if one had done that. But that's hindsight, the real question is whether it's worth it to make that change now.
If the 401k was most of your assets I'd say yes, run don't walk to your broker or administrator and do this right away. Based on the above charts I'm predicting at least another 30% drop in the market and this matches my personal intuition. And what is the risk of doing this? Not much, just that for the next year or two your money would be earning only 3.5%
But if the 401k is a relatively small part of your assets, then what the heck, stay diversified and let it ride.
The key here is that you want to be diversified not only among stocks, but among different asset classes -- stocks, bonds, cash, real estate, non-US assets, gold buried in the back yard, risky new small businesses, etc. All your eggs in one basket is dangerous, no matter how good that basket looks. But having a few of your eggs in a dangerous or out-of-fashion basket is OK or even good.
The smart thing to have done with a 401k would have been to shift it a year ago from mostly stocks to mostly bonds or T bills. It would be worth almost twice as much now if one had done that. But that's hindsight, the real question is whether it's worth it to make that change now.
If the 401k was most of your assets I'd say yes, run don't walk to your broker or administrator and do this right away. Based on the above charts I'm predicting at least another 30% drop in the market and this matches my personal intuition. And what is the risk of doing this? Not much, just that for the next year or two your money would be earning only 3.5%
But if the 401k is a relatively small part of your assets, then what the heck, stay diversified and let it ride.
The key here is that you want to be diversified not only among stocks, but among different asset classes -- stocks, bonds, cash, real estate, non-US assets, gold buried in the back yard, risky new small businesses, etc. All your eggs in one basket is dangerous, no matter how good that basket looks. But having a few of your eggs in a dangerous or out-of-fashion basket is OK or even good.
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