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Company is moving to a poorly rated 401k provider.

If I keep the money in company 401k I can take advantage of dollar cost averaging with poor fund choices.

If I rollover to an IRA I can invest as I like (Testla, BitCoin, AI portfolio options, whatever), but no dollar cost averaging - just a pot of money.

Weekly paycheck will still go to company 401k provider, but will start at $0.

Is dollar cost averaging always a better option?

EDIT: No investing in an IRA each paycheck, only 401k. Company offers a match. Not planning to invest more than the IRA limits. WOuld like to put some money in if legal. Company allows an in-service rollover.

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    So will you be investing in an IRA each paycheck instead of your 401(k)? Does your company offer a match? Are you planning to invest more than the IRA limits?
    – D Stanley
    Dec 15, 2021 at 17:34
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    And will your company allow an in-service rollover?
    – D Stanley
    Dec 15, 2021 at 17:34
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    Based on “poor fund choices” and your list of investment options, what makes you think the new 401k vendor “poorly rated”? Is it just that you can’t buy individual stocks or Bitcoin? Have you looked at the fund choices at the new vendor? What makes them “poor” choices?
    – quid
    Dec 15, 2021 at 18:03
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    Adding even more to @quid comment: if the fund choices are poor, that is the kind of thing you may be able to pester your HR group to work with the provider to remedy. Not a guarantee, but worth asking. Dec 15, 2021 at 19:14
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    If you think BitCoin is an appropriate vehicle for investing for retirement, you are better off using the 401(k).
    – chepner
    Dec 15, 2021 at 19:43

3 Answers 3

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You can do dollar cost averaging into an IRA. You can have $x from each paycheck go into the IRA. Many employers allow you to "direct deposit" into multiple financial companies. For most people that is a bank, but it doesn't have to be. If your employer doesn't allow this, you can setup regular pushes/pulls between your bank and your IRA.

The big thing that is missing in the IRA is company match. The 401(k) limits are also larger than the IRA limits, so if you make enough money you will need the 401(k) to be able to put 10 percent of your gross into a retirement account.

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  • The caveat is that a periodic deposit will likely add to a cash balance in the IRA. To have DCA, you also need periodic purchases (with a fixed dollar amount, not a fixed quantity of shares).
    – Ben Voigt
    Dec 15, 2021 at 19:56
  • I have never had any IRA money as cash. Many Mutual funds have a very low initial investment if you setup automatic contributions. Dec 15, 2021 at 21:32
  • I suppose that will depend on whether the mutual fund is held as an IRA mutual fund account or as a mutual fund position within an IRA brokerage account. Both likely have low initial investment and periodic contributions, but only the former will always immediately invest incoming transfers.
    – Ben Voigt
    Dec 15, 2021 at 21:38
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Is dollar cost averaging always a better option?

No - in a growing market, DCA is actually worse than lump-sum investing. Yes you might get lucky a few times and buy during a dip, but the opportunity cost of waiting to invest and buying higher later typically offsets that. You're typically better off just investing the lump sum and letting it grow.

DCA does reduce the risk of mis-timing any buying during a bubble, but it comes at the expense of lower expected returns in a growing market.

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    In a growing market, delaying is worse. If the funds to be invested are a periodic series, then investment as they come in (aka DCA) is superior to holding until the end of the year and investing a lump sum. The analysis you rely on assumes that the funds are initially available as a lump sum, and it is an error to apply the same conclusion to periodic incomes.
    – Ben Voigt
    Dec 15, 2021 at 19:54
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Company matched 401k contributions are by far the the better deal. Way better than IRA/Roth IRA because you are limited to a total of ~$5000 yearly contribution to IRAs, whereas 401ks typically have a limit of $10000 or more per year.

Personally, I have always gone 100% monthly contribution into a stock index fund ETF. (Don’t bother with bonds.)

When you leave a company, you can easily roll over that 401k into an IRA. But always immediately start a new 401k with your new company. (Personally, I’ve rolled over at least 4 different 401ks into an IRA.)

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    The 2021 limit for employee contributions to 401k (or other qualified plan) is $19,500 (plus $6,500 if age 50 up) and total (including employer match or elective) is $58,000 (few employers are generous enough to hit the limit, but as mhoran said any employer contribution is better than you can get in IRA), while IRA is $6,000 (plus $1,000). All of these are rounded from figures adjusted every year for inflation; 401k goes up to $20,500 and $61,000 for 2022, and the other rounded values remain the same -- this time. Dec 19, 2021 at 5:11

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