Background: I just started a new job, first job that has ever had 401k benefits.  Terms are 6% with a 9% match.  Vestment is 2 years.

So looking at the current market, we seem to be ripe for a recession.  I have several different potential investments I can make with my 401k, or even spread them around among different mutual funds, money market accounts, etc, and I am fairly certain self-directed.  I was thinking it may be better to take the low return of a money market for a while, see if there is a real market dip, then transfer into stocks.  Essentially I don't want to buy in at the top and end up negative due to poor timing.  The mutual funds available have a couple with historically high returns, but looking at their 6 month performance they seem pretty flat.  

Anyone have advice here?  It's fine if I am just overthinking it, tell me so.  It is enough money each year with the match that it would hurt to know I went stupid with it.

Depends on your age. If they match 9% I would do the 401k and put in 9%. Most only match up to 6%. If in 20's - 30's I say 401k.

You are buying and the company is giving you "free" money to invest, which way would you like the market to go, up or down?

All risk is a function of your investment time horizon:  how long you plan to leave the $ invested.

If you don't plan on taking the money out of your 401(k) within the next few years (which is essentially impossible unless you are >59.5) then put it in equities.

I don't know what your options are and what you are calling high and low yield/risk, but if the money will be invested for more than a few years, equities should give you the best return.

Trying to guess which way the market is going (i.e. "I think we're headed for a recession"; you realize people have been saying that for the past...oh, 6 or so years) is a guaranteed way to lose $.

S&P500 or equivalent and forget about it.

This.

People try to make investing complicated, simple is very good.

That's not a bad plan if you're not transferring money from some other account.

It will take you two years to accumulate any sizable equity for further investment, anyway.

Later, place it in an index fund, something that tracks the S&P, Russell, etc.

Use these next two years to learn how to invest and run your own money.

I would hold off on individual stocks until you are well grounded in investing strategies.

Jim

How old are you?

Absolutely start maxing it out. If you're worried about the market, put more into short term bonds. Put some in a broad market fund though.

The way I read the OP he is saying, "I'm doing the 401k, but with the uncertainty of the market I'm not sure if I should be putting my money in the stock sector when the market seems to be at a peak..."

I sympathize with the OP, and while some will say if you're in it for the long run just buy in and stay in, don't try to time the market because you can't. That being said, lets consider its the other end. You want to sell stocks but the market has crashed and everything is in the crapper. No smart person is going to sell until things recover; why suggest people buy in when it's high?

IMHO, with the current market I see no problem holding onto money market like funds until you see a better time to move that investment into the stock sector.

First, you need to understand the investments offered.    What they call "Safer" may not be.   For example, you might assume that a bond fund would do well when interest rates rise.   That would be dead wrong: 180 degrees off.

We've had decades of arguments over whether people can "Time" the market.    The answer, of course, is Yes.    Some people do, but the odds of an average working class non professional doing it successfully?      Not good.

Therefore, the CW is just to park it in mutual funds which mimics the broadest exposure, and don't look at it too often.  

In 30 years, you will be Rich, Bitch!

Or so, it has been promised.    


The market is irrational, and it can stay irrational ...well, basically, forever, as long as the national banks keep pouring in the free money.  Will they keep it up?       That's the question nobody knows, but that's the bet we're all taking.

High is relative.

People have been saying the market is "high" for years...and it's gone nowhere but up (not straight up, but you know what I mean).

More money is lost sitting on the sidelines waiting for some kind of sign that "now" is the time than is made by staying in.

Buy it, forget about it, look at it again in 20 or 30 years:  you're rich.

It really is that simple.

Another thing people forget about is dividends. Stock/MF price appreciation is one thing, but reinvesting dividends really adds up over time. Even if the markets are flat, you will see gains in shares of stock.

I have gone to a simple method as well: total stock market, total international, total bond and healt care. My wife has the same but instead of health care she has energy. All are vanguard funds with very low expense ratios.

I think you're the only one so far to understand what I was asking.  To the others, yes I am doing the 401k and wasn't asking if I should not do it, was asking for advice on where to park the money itself.  The available money market funds are relatively flat, less than 1% historical return, a couple of the US stock funds are 11% or so, but have been flat the past 6 months.

SigOwner has it right, I'd rather not buy into the market at a peak.  I probably should have phrased my question as: I feel we are in a peak in the stock market, is it smarter to hold in a low-risk low-return money market fund until I see the market go down, then transfer to a stock fund?  I know trading costs and all can come into play here as well, but I don't have that information with me at the moment.

edit: I'm not looking to park my money for long term in a low-return fund, but investing it in a historically higher-return one and losing 15% of it's value in the first few months doesn't sound great either.

Self-directed IRA.

My opinion, if you dont need the money soon then invest in stocks or mutual funds. I prefer mutual funds.

The markets have historically gone up. Period. Naysayers say we are at the peak, despite history trending upward over time. Much like peak oil.

I keep it simple. I started with 4 mutual funds, invested until i had x amount in each them picked 2 more, while still putting a little in the first 4. I wouldnt go much over 6 or 8 total if they are mutual funds.

A mutual fund, by nature is diversifed between businesses but not sectors so thats something to keep in mind. If i did stocks i would pick many more to spread out risk.

I don't feel that I know enough of the intricacies of investing to do that just yet.  I of course understand buy low sell high, dividends, P/E ratios, etc, but feel I need to know more than that before I decide to go in with a significant amount of money.  With the current 6+9% 401k, I will be putting in close to $10k a year before bonuses and overtime, and my match is set to increase 1% up to the full 9% each year.   Since we are being bought out, that match could change, but supposedly we are not going to see a major change in benefits.

You asked if you should sit in a money market and wait for the market to go down (because you "feel" it's high) or invest in equities.

I asked you, if you are going to be buying stocks for the next 20 years, which way would you like the market to go, up or down?

Investing isn't complicated if you don't want it to be; OTH, it can be if you want it to be.

If you plan on investing your funds for more than a couple of years, the answer is equities.  Which equities is a function of your plan.  If they have an S&P500 index, then that is the answer.

Simple.

If you're looking for someone to agree with you that the market is "high" then the answer is we're split, 50/50 over whether it will be up or down over the next week/month/year.

Over the next decade it will probably be higher but, as someone els has said, cash = 0 while stocks earn dividends so even flat or not higher over the next decade doesn't mean you couldn't have made a lot of money.

Good luck.

First, learn something about money by watching the free videos at this link:  http://www.hiddensecretsofmoney.com

Then visit this website to learn how to hold your assets.  Right now it's about wealth preservation, not growth.  By maintaining liquidity, you (actually your IRA) can become enormously wealthy after the global economic reset kicks in.

http://www.perpetualassets.com

Former Reaganite OMB Director David Stockman was asked where an investor should look for growth. He replied, "an investor should not look for growth, he should look for cover."  Go to 4:10 of this video:  https://www.youtube.com/watch?time_continue=300&v=t2CA3LB-tFs

OP you have not said how old you are.  If you're not looking at retirement for 20+ years then the ups and downs of today's market will be a dim memory by then.  Your 401k is not the vehicle to use to time the market.

Hell I'm 40-mumble and my 401k is very heavily weighted toward riskier stock mutual funds because I don't plan to retire for at least 20 years, maybe 25.  I just rebalance at the end of every year if needed.

My advice here is to drop everything you think you know and start fresh.  You haven't even started and you are already talking about market timing with a 401k.  

You aren't smart enough to market time.  That's not an insult, just an honest assessment.  It shouldn't hurt your feelings because 99.9% of people aren't smart enough to market time.  Anyone who claims that they can do it better be posting from their yacht because the kinds of returns a successful execution of that strategy should provide will stack up quick.

The truth of the matter is that market timing for most people just means a certain amount of time out of the market which reduces their long term performance proportionally to the time they are out.

Even if you thought you could market time, your 401k is not an appropriate vehicle for it.  That's your retirement money, don't play games with it.  Don't let your ego trick you into adopting a foolish strategy.  Worrying about your first dollars invested suffering a correction is your ego talking, not your rational brain.



What makes you think that you have a better read on this than the rest of the market?  Do you have a particular occupation or background which puts you in a position to know something that millions of other people don't know?  If you know something that nobody else knows, then by all means be a pal and share it here so we can get rich together betting on it.

There are people in this thread as we speak who predicted recessions, market corrects, ect several times over the past 7 years only to be proven wrong.  If and when they are right it'll only be in the broken clock sense and not in a sense that makes them a reliable source of actionable information.  I would be careful not to overestimate your ability to predict the future.

I guess it depends what your definition of "market timing" is. If you mean holding money until the specific bottom dollar day of the market then no, nobody can do it. But holding money for a "lower dip" then yes, people can, and often do time the market very successfully. We all know the market is cyclical, and for the last year it's been cycling (DJ 15,500 to 18,000 area). IMHO, I'm not suggesting the OP wait for 15,500 or lower, but it certainly would be advisable to not buy all in at 18,000 either. Either DCA over the next several months, or wait for XYZ amount to buy in.

I have a pile of cash earning a few percent interest right now because I'm not buying in on the high of the cycle, but if the DJ drops to 16,500 area I can tell you that I will be enticed into nearly doubling my personal investment portfolio. Could the DJ go to 19,000 in the next 3 weeks and I miss out on a boatload of earnings? Yup... but it could also drop down and I can get more stock for my money too.

There's a difference between knowing and predicting the market timing so well that you can make millions and just paying a little attention to when you buy & sell.

FWIW, I have once in my life "timed the market" and I got lucky when I did it. In 2008 I had already DCA'd most of the money I had planned on investing as they continued their downhill slide but they kept going down, down, down and down. I finally said screw it, I'm scraping together every penny I have and putting it in. Just so happens the money hit my account the very same day it truly bottomed out (OCT 2008 IIRC); Within 9 months I had tripled my money it rebounded so quickly from that low. I would be a fool if I believed I could pull the same thing off again, but you can bet that I'm going to hold onto a not insignificant amount of money in cash-type funds and wait for similar conditions, whether that be a smaller dip, or a landslide...

Just my opinion; I've done fairly well up to this point.

Hell, there is one member on here who joined in 01 that has been predicting collapse since i started lurking in 06ish. I imagine he has predicted collapse since he was a kid. Just that kind of guy.

Whenever someone tries to explain it to me, their explanation is just too nebulous for me to believe it in the absence of documented returns over a sufficiently long time horizon and a broad enough spectrum of investments to represent a diversified portfolio.  Listen to your own explanation of your own experience market timing.  There's nothing in there that represents a concrete strategy that someone could adhere to and expect to come out ahead.  I think to really be a good investor you have to be critical of yourself to know the difference between being good and being lucky.

The reason I say this is that lots of people have said the same stuff that you've said over the past 7 years and in hindsight they usually end up wrong.  Plenty of guys in this forum talked the same way when the DJIA crossed 14,000 and were waiting for the correction that never came.  They are probably still holding their dicks waiting to get their money back in after missing out on 14 quarters of dividends.

As far as OP goes, he's ALWAYS going to be dollar cost averaging because that is the very nature of how most people contribute to a 401k.  If his first dollars go in high and there is a correction, then he's always got his next dollars coming in right behind when stocks are relatively less expensive.  I think he would be a fool to try and play the market timing game with his 401k.

With that said, I'm not above taking a look at fundamentals and being honest with myself when things are way out of wack such as the depths of the 2008 crisis or the peak of the late 90's DotCom bubble.  Those are rare circumstances though and not really what OP is talking about.  If you look at earnings yields now and compare them to all the other alternatives including interest rates, current valuations, while depressing to think about, still make sense in the current context.

Agreed.  It's not hard to stack back a 100k in 5 years or less.

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My 401k is not the greatest of choice. I just spread the risk low cap, high cap and international.

 

You really need to look at what investment options you have within the 401k.

Watch the fees on the funds.  Diversify for your age.  Invest enough to get the full company match. Reinvest dividends.  Sit back and watch for years.

I agree if he has an S&P index fund in his 401k.

Fwiw OP I am 63 and will retire in the next 2.5 years and run a ratio of 60/40 stocks and bonds.
35% of my funds are in an S&P 500 Index fund.
Your age will tell us a lot.
Still even a 50/50 stock/bond fund keeps things floating pretty nicely.
Unfortunately though not a lot of 401's carry low cost index funds in any sort of abundance so the fees on the offered mutual funds literally stab you in the ass.

Up or down doesn't matter.  You have a long time to retirement so use the dollar cost averaging built into a 401k and buy a total stock market index or an S&P500 index.  No matter what don't change anything unless it's to put more money in.  Nobody has been able to time the market, you aren't any different.

This. Quit worrying about trying to "time" the market and just start investing.

Start maxing out and go index funds or a little aggressive.

Vanguard says I should hold more bonds at this point in my life, but I still have many years to retirement. I'm keeping it in stocks.

Just a thought,  but consider a ROTH 401k if your starting out. Also I just finished Money Master the Game by Tony Robbins. (I know he's out there a bit, but the book is packed with good financial basics

and investment stuff that you probably never heard of or me) It could also be about 300 pages shorter !!  or try  Dave Ramsey or whoever you like.

good luck

Which is fine but at the moment bonds are doing pretty good.
My Vanguard Intermediate-Term Bond Index(VBILX) has a current YTD of 7.63%.
On the other hand my S&P 500 index fund(PSIFX) has a YTD OF 3.83%.
During Brexit as an example my stock funds fell fairly significantly where as the old dull bond fund rose up pretty good to help my balance.
Bonds are very useful in a portfolio.