Dollar Cost Averaging

[Da_Sperm]

How do you guys feel about dollar cost averaging. I know many people contribute to their 401K on each pay period.

After putting the numbers on paper and based on my own experience, I've found that dollar cost averaging doesn't yield the returns as expected.

For example, I've invested in a fund that was up 19% on December 31st of 2006, but for me, it was up only 7% because of dollar cost averaging. That 19% was based on the price of the fund on Dec 31st of 2005. Of course, I bought on the 15th and 30th of every month, so my return was no where near 19%.

 

[Shamocha]

See I am completely clueless on all of this. I need someone to sit down and explain 401k to me. I've tried doing some reading up on it but I was still looking like :noidea:

 

[Tony]

Here we go again :shame:


Ok, If your 401k is based on mutual funds, 1st pray that it?s as
Diversified as possible. 2nd for a 401k, that is made up of mutual funds, the
Gains and loses are only meaningful on one day. And that?s the day you begin
To sell and starting taking a cash pay out.

I?ve seen mutual funds, and hedge funds worth millions, become worthless,
I?ve seen them go from 60k to 11k over night.

World Trade Center, Enron, bankrupt companies, etc. etc.

Your mutual funds may be worth millions today,

The questions is will they be worth anything when you get ready to
Withdraw the money.

There are other types of 401Ks available.

Ever heard of Compounding Interest?

 

[Shamocha]

Here we go again :shame:


Ok, If your 401k is based on mutual funds, 1st pray that it?s as
Diversified as possible. 2nd for a 401k, that is made up of mutual funds, the
Gains and loses are only meaningful on one day. And that?s the day you begin
To sell and starting taking a cash pay out.

I?ve seen mutual funds, and hedge funds worth millions, become worthless,
I?ve seen them go from 60k to 11k over night.

World Trade Center, Enron, bankrupt companies, etc. etc.

Your mutual funds may be worth millions today,

The questions is will they be worth anything when you get ready to
Withdraw the money.

There are other types of 401Ks available.

Ever heard of Compounding Interest?

I've heard of compounding interest. And don't go :shame: at me, at least I'm making an effort. I signed up and I went to the site and I tried to figure out which funds to place the money in. I picked 2 but I don't know if those were the best or not.

 

[Tony]

I've heard of compounding interest. And don't go :shame: at me, at least I'm making an effort. I signed up and I went to the site and I tried to figure out which funds to place the money in. I picked 2 but I don't know if those were the best or not.

That?s the point I?m making you don?t know which funds to pick.

People that do this for a living are often times wrong.

Where?s the next Microsoft, Google etc. who knows.

Someone even posted a thread where a waitress somewhere was lucky
At picking stocks,

Even if you get great mutual funds, when are you gonna sell them &
Will the funds tank before then?? And if there?s a slide who is responsible for
Noticing the slide, and reallocate your funds??

#1 You have to beat inflation, which grows at about 4% each year.

There are many 401ks which have an option for fixed rate around 10%
With compounding interest. This is a guaranteed rate similar to a CD
No up and downs, just growth. And with the Compounding Interest component,
I?ve done way better than those mutual funds which are subjected to the volatility
Of the market.

And last note; You know how people sometimes borrow money from their 401Ks,
Well before they give you the money they secure it first by selling some of your stock and putting it in a
Fixed rate account, in order not to have you borrow a certain amount and the next
Day/ week/etc your mutual funds are not even worth what you borrowed.

Mutual Funds are a vehicle whereby over time you may do better than a fixed rate account. But you are a hostage to world events. With the compound interest
Component, and the Guaranteed Amount Pay out non- mutual fund 401Ks are
Safer to me.

Then invest in mutual funds with other monies

 

[Shamocha]

Well I'm just starting out and I figured that 401k would be the best way to start. I probably should've started a few years ago. I know at the old job I had stock options but when I left the company I cashed them in and kept it moving. I tried to ask some people around here about 401k and they basically just told me to look over the site and use my best judgement. They told me over the years I'll probably earn money and more than likely I'll lose some, but it was a long term investment. Once I get the hang of saving I'll look into trying other things.

 

[Tony]

Well I'm just starting out and I figured that 401k would be the best way to start. I probably should've started a few years ago. I know at the old job I had stock options but when I left the company I cashed them in and kept it moving. I tried to ask some people around here about 401k and they basically just told me to look over the site and use my best judgement. They told me over the years I'll probably earn money and more than likely I'll lose some, but it was a long term investment. Once I get the hang of saving I'll look into trying other things.

You gotta contribute to your 401k.

Whether it's mutual funds or whatever, most companies

will match a certain amount of what you contribute.


You cant Leave that free Money on the Table!!!!!

 

[Shamocha]

You gotta contribute to your 401k.
You cant Leave that free Money on the Table!!!!!

Yup. Call it being young and dumb before. Can't leave the free money and I don't really miss the money in the long run since it's pre-tax.

 

[Da_Sperm]

Tony, I don't know where you get your info, but I have yet to see a CD that gives a 10% guaranteed return or any other vehicle that give a guaranteed return of 10%. I would like for you to share that fund, CD, or whatever with the rest of the board. A guaranteed 10% return is definitely the way to go.

However, I am a RISK taker. I will risk it for the reward. Remember, people made money when Enron fail also. I think its called SHORT SELL.

But back to the topic. Don't be fooled by the returns of a FUND because its based on the price of the fund on Dec 31st of the previous year.

 

[Tony]

Tony, I don't know where you get your info, but I have yet to see a CD that gives a 10% guaranteed return or any other vehicle that give a guaranteed return of 10%. I would like for you to share that fund, CD, or whatever with the rest of the board. A guaranteed 10% return is definitely the way to go.

However, I am a RISK taker. I will risk it for the reward. Remember, people made money when Enron fail also. I think its called SHORT SELL.

But back to the topic. Don't be fooled by the returns of a FUND because its based on the price of the fund on Dec 31st of the previous year.

Oh yeah no CD is 10%, but a fixed rate account is
Guaranteed like a CD, Call your 401K administrator, and ask about fixed rate.

They will not want to talk about it cause it?s no commission for them,

But read your paper work and ask about fixed rate.
Ask them do they offer it, & whats the rate. mine is 10% with compounding interest.
Some offer less, & some do not offer compounding interest.

Oh yeah and short sell can save you.
but how short is too short

Too many ifs in that equation, I got other things to think about.

It?s obvious you are a Risk taker

 

[Da_Sperm]

See I am completely clueless on all of this. I need someone to sit down and explain 401k to me. I've tried doing some reading up on it but I was still looking like :noidea:

Dollar cost averaging is investing money in a fund/stock on a given day (every other Friday or 1st of the month, etc). This way, you are buying the fund at the average price, thus limiting your loses and also your gains.

Ex.
FundA is $10.00/share on 1/1 and you buy $100 worth (10 shares)
FundA is $5.00/share on 1/15 and you buy $100 worth (20 shares)
FundA is $20/share on 2/1 and you buy $100 worth (5 shares)
FundA is $1/share on 2/15 and you buy $100 worth (100 shares).

You have a total of 135 shares. This is dollar cost averaging.

 

[HORNETSWARM]

Sharebuilders.com is one that I use. Many of you can also look at the February 2007 issue of Money Magazine and find the best performing mutual funds and stocks over a given period of time. Some of those funds have given investors anywhere from 10%-52% returns on their mutual funds. Look at some strong funds that have given high rates of returns over a three-five year period. Look at Blackrock and T. Rowe Price Latin America Funds in that Feb. issue. HORNETSWARM isn't a finincial advisor, nor do I tend to be. Please consult your own financial advisor for advice. But, always remember that you can always look at a greater return than the current 401k plans that some of your jobs currently offer. "Diversify" and create wealth. We all deserve it.

 

[Da_Sperm]

You can look for greater returns outside of your 401K, but you have to consider two things IMO.

1) Pre-Tax dollars: If you are in the 28% tax bracket, then you have to find a fund that outperforms your 401K fund by 28%, or invest 28% more after-tax dollars.

2) Matching Funds: If your employer matches 25% of your 401K, then you will need to find a fund that again, gives you 25% return over your 401K fund.

In other words, if you put $10K of pretax dollars in your 401K with a 25% employer match. Then it would take a $15,300 after-tax investment to equal that of a 401K investment with 0% return. Then, you have to consider the taxes you will owe on the after tax fund each year.