Does “buying low/selling high” apply to retirement?

Did you know I LOVE LOVE LOVE getting emails from PDITF readers!? It’s nice to break up the spammy sponsored blog post proposals that typically flood my inbox. “Dear Ninja, I would like contribute relevant financial information to blog readers of your fine website”. 

Emails like that make me want to stab my eyeballs out with a jalapeno.

jalapeno eye

That’s why I was pleasantly surprised to get this email from a reader….


I have a question about buying low and selling high. Does this apply to retirement accounts as well?

I have nearly 40k in my 401k, nearly all a ROTH. I put in 12% of my income in and my employer matches 4%. Given that the markets are what I would consider “high,” does it not make sense to sell now and move my accounts to cash?

I tried doing this through my Fidelity account, but did not have a cash option, everything was in funds or bonds of some sort. When I contacted a representative on how to do this I was asked why am I doing this, that this is not the point of a 401k, and that it would benefit me to stay in the market, for the long term.


Ahhh, pretty simple question “Should I buy low and sell high?” 

The answer is even more simple…. YES!!!!!

Only problem is, no one knows what “high” or “low” means. People were freaking out when the Dow dropped under 10,000. They thought 9,000 was an insane deal and it was time to buy. Little did they know, the markets would shed another 25%.  

I think your Fidelity rep is spot on. Maybe the markets hit 16,000 next month, or maybe they drop to 13,000. Since I have no way of knowing what’s going to happen I just invest consistently every month. That means I bought in when the market was in the 6’s and I’m buying now in the 15’s.

Don’t get me wrong. I know the markets have been extremely bullish the last couple years. A correction will surely come. But is that correction going to be from 20,000 back to 17,000? Or will it be from 15,000 down to 12,000? Will it be six months from now, or six years?

I CAN accurately predict the market will go up and down, but I CAN’T get any more specific than that.

And for that reason, I’ll stick to boring old unemotional dollar cost averaging in my retirement accounts.

11 thoughts on “Does “buying low/selling high” apply to retirement?”

  1. I plan to start considering liquidation of my stocks and mutual funds 5 years before retirement. I do not have a fixed time for liquidation but will just be watching for a high time to sell. If I have to hold them in to retirement until a few years after I retire than I can do that too.

    For now I am just holding for the long run.

  2. Your reader is presumably rather young, and has a small 401k balance. At this point in her* life, the usual advice is that she should be investing heavily in stocks (perhaps an 80/20 stock bond split, including about 25-40% of her stocks in international) and not worrying about rises and fills in the markets. By middle age, she could move to about 60/40 and become more conservative as retirement gets closer. I myself am about two years from retirement and am still keeping about 45% in stocks, and I plan to do so indefinitely, as there has to be some growth even after retirement.

    Her bigger concern should be the expense ratios of her funds. If she has the Fidelity Spartan accounts available in her 401k, those are her best choice. Even apparently small expense ratios like 1% can significantly cut into one’s returns over the long haul.

    * Or his, as the case may be.

    • >Your reader is presumably rather young
      You are right, he is 25 🙂

      My 401k plan changes the names of some very large and popular funds, but here is what I have. The closest thing I have to figuring out what the funds really are is they always say what the fund “seeks to track”:

      International Equity Index Fund
      Seeks to track the MSCI All Country World Index
      Expense Ration of 0.0868%
      25% of my account

      US Large Cap Equity Index Fund
      Seeks to track the Russell 1000
      Expense Ratio of 0.0393%
      50% of my account

      US Small/Mid-Cap Equity Index Fund
      Seeks to track the Russell 2500
      Expense Ratio of 0.0522%
      25% of my account

      Thanks for the comments and huge thanks to Ninja for the post!

      • Then I would leave things as they are. You have some diversification, you may have 30-40 working years to ride out any market volatility, and age 25 is the perfect time to be most aggressive. The main thing now is to be saving as much as you can and taking advantage of the employer match. And as Savvy Latina points, when you get a new job you can move to a trustee like Vanguard where you have more flexibility and can benefit from their unusually low expense ratios.

      • Josh, just so you are aware, your Russell 2500 and Russell 1000 indexes (or approximations thereof) will share the largest 500 companies in the Russell 2500, thus further weighting you towards the Russell 1000 (Large caps). Depending on what you are looking for, you may want to adjust your portfolio so instead of the Russell 2500 you would hold the Russell 2000. This way, in your portfolio, you would have 50% weight in the top 1000 largest capitalizations int he Russell 3000 (with your 50% in the Russell 1000) and 25% weight in the 2000 smallest capitalizations (with 25% in the Russell 2000). Currently, you have the 50% in the top 1000, but then add at least another 5% (probably closer to 10%) with your 25% holdings in the Russell 2500, since the top 500 capitalizations in that index will also be held in the Russell 1000. Just a thought/wondering if you were aware of the overlap.

      • One problem you don’t identify — if you move all of this to cash NOW, even assuming you are “right” in terms of the market being at a high….when do you MOVE BACK IN to the market? You could miss out on big returns if you fail to get back in the market at its bottom, etc.

        This is why you should dollar-cost average your 401k continuously and never “sell” (with the exception of perhaps annual rebalancing to keep your account at the appropriate investment mix). If you’re going to be constantly adding money, you’re always better just buying continuously while letting the money ride, so that you don’t miss ANY of the increases. Even if that means weathering the occasional decrease, just look at it as an opportunity for you to buy more shares with your dollar-cost averaged contribution at a cheaper amount.

        (Also: pulling your money out of stocks into cash means you miss out on dividends….another reason you should be reluctant to pull out).

  3. I cannot cash in gains on my 401K. I can only exchange to other funds, which sorta sucks. This mean I will be doing dollar cost averaging. The best thing she can do is build up her 401K funds. When she decides to move companies, she can convert to an IRA, and choose a brokerage to invest in other funds or stocks.

  4. The only time I plan on going to straight cash, or as close of an approximation to cash as I can get, in my retirement accounts is when I have enough value that I feel I have enough to fully fund my retirement even if I weren’t to earn another cent. In other words, like won’t happen any time soon, if ever.

  5. Although your reader probably won’t be using it because his/her cash is invested, I want to let point out that he/she probably has a cash option in Fidelity — at least I do in my Roth. It was hard to find at first (and frankly, I can’t remember where/how I found it), but when I transfer cash into my account it goes into an FDIC-Insured deposit with one of their “program banks.” I chose this option because I wanted to make sure my cash was insured while I was building up enough to purchase my first investment.

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