Trying to time the market is one thing. But using your 401(k) to dip in and out of stocks as a means of boosting your retirement stash? Step away from the computer.
Thatâs what a guy by the user name of Throwaway is trying to convince his father to do, according to this request for help posted on Reddit this week:
There was plenty of helpful advice spread out among the 180 comments, including one responder who says Throwawayâs dad should try his hand at this game.
Perhaps the most useful comment contained a link to a 4-year-old post from Ben Carlson of the Wealth of Common Sense blog.
That blog post told the tale of âBob,â who began saving at age 22 and stashed away $2,000 a year, with an additional annual bump of $2,000 as each decade passed. In other words, he put away $4,000 a year in the 1980s, $6,000 a year in the 1990s, etc.
The problem? Bobâs âthe worldâs worst market timer.â
He started off by saving up for three years and putting his first $6,000 in the S&P 500
at the end of 1972, right before the market was cut in half over the next two years.
Yes, Bob invested at the top, but he didnât sell. No, he held on for dear life â or, in terms bitcoin
fans would better understand, he HODLâd â because he was too scared of being wrong about his sell price, too.
Bob, Carlson continued, waited 15 more years and had $46,000 to put in play. He bought into a bull market in 1987, just in time to see the S&P drop 30% in short order.
Again, he didnât sell.
He waited until he got his courage back in 1999, after he had amassed $68,000 of savings. He loaded up in December 1999, right before the bubble popped, and he was broadsided by the 50%-plus retreat that lasted until 2002.
He made his final purchase in October 2007, when he put $64,000 in play. Whoops! The financial crisis crushed the S&P and the Dow
This is what his buys looked like:
After that string of catastrophic market-timing moves in which he basically bought every bull-market peak, Bob just let it ride and retired in 2013.
Guess what. He still amassed $1.1 million.
Whatâs more, if Bob had just put his savings in play on an annual basis, using dollar-cost averaging, he would have had $2.3 million for his golden years.
So, perhaps these words from Carlson would help Throwaway convince his dad to stop trying to time the market:
âSaving more, thinking long-term and allowing compound interest to work in your favor are your biggest accelerants for building wealth,â Carlson wrote. âThese factors have nothing to do with picking stocks or a complex investment strategy. Get these big things right and any disciplined investment strategy should do the trick.â
Then again, as Gooberfaced put it: âIf losing $10K didnât do it I doubt the advice of any young whippersnapper will do it either.â
Good luck, Throwaway.