I'm 34. 100% of my 401k goes into an S&P index fund.

I'm up about 25% this year.

If this were in my brokerage account I'd probably cash out some of the profits and hold onto it and buy more shares as the market eventually comes back down. But this being a 401k which has semi-monthly deposits from my paycheck, do I just leave it?

Just curious if there's any thought as to what to do with a 401k at this point.

  • 3
    Danger Will Robinson! Market timing may sound like a good idea, but as a cautionary tale I know a guy who did that about 1 year ago with his 401k and is kicking himself today because it was never the "right time" to buy back in.
    – JohnFx
    Commented Jan 1, 2014 at 1:32
  • Good point. I decided to just leave my 401k 100% in the s&p index and have my ROTH use a 4 in 1 Fidelity Index approach.
    – Jack
    Commented Jan 8, 2014 at 17:59

6 Answers 6


SPY is up 29% YTD. If you are 100% S&P and not up 28.9% plus your deposits, I'd be concerned — check your fund's management fees.

Are you calling a top?

Proper asset allocation would adjust holding on a regular basis. At the simplest level, say 70% S&P 30% short term/bond fund. It's time to re-adjust to the mix that's right for you, and not market-time.

If 2014 sees a huge drop, the re-allocation to 70/30 buys back in at a lower price. If up again, a bit gets shifted out.

Last, it makes sense for your deposits to match your allocation split, to lessen the divergence from your target numbers.

Note: Asset allocation is a bit more complex than I just described. A good thing to research a bit. (Happy to see someone edit a couple good references here, especially if they aren't looking to offer a full response.)

Here are a few choice questions on this site that are related to asset allocation:

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    I was in a target fund until a few months ago and then switched to the pure index fund when I noticed the target fund fees were 0.85% and the index was 0.05
    – Jack
    Commented Dec 27, 2013 at 1:28
  • S&P Index Fund isn't the same as an S&P ETF. A fund would have a manager that is buying protection by selling call options or buying put options. In a bull market both of these will limit your gains but retain your earnings if the market reverses. I would not be concerned.
    – CQM
    Commented Dec 27, 2013 at 5:47
  • 1
    @CQM - Can you substantiate this statement? I understand that a fund might exist that does what you suggest, but my understanding is the standard "S&P Index Fund" does no such thing. In effect, a computer does the trading, and no derivatives are involved. If you can cite an S&P fund whose return was better the the S&P in the crash of '08, I'd be interested. VFINX, for example, makes no reference to such a derivative strategy. (And OP already replied his S&P fund cost was .05%, it was another fund that he was in earlier in the year) Commented Dec 27, 2013 at 13:10

I recommend that you just leave the 401K where it is - a S&P 500 is a nice simple fund with very low expenses, and over the long term, I think that's a good choice for a 401K. I don't think it makes sense to put money in bonds at your age.

  • Thanks. I think I might keep my 401k with the index fund and perhaps have my ROTH use a target fund which has all the diversification etc..
    – Jack
    Commented Dec 27, 2013 at 17:48

JoeTaxpayer's advice is solid - reallocating to your target asset allocation is the right move. You should have an Investor Policy Statement (IPS) that maps out your financial objectives, risk tolerance, liquidity constraints, etc. From the IPS, you can determine your target asset allocation and rebalance accordingly. A few more comments:

  1. It sounds like 100% of your 401k is in US stocks. You might have other accounts that make your overall portfolio globally diversified, but if not, you want to make sure to set a target asset allocation for a global portfolio.

  2. Your statement "If this were in my brokerage account I'd probably cash out some of the profits and hold onto it and buy more shares as the market eventually comes back down. But this being a 401k which has semi-monthly deposits from my paycheck, do I just leave it?" is a bit counterintuitive. If you are going to try to time the market (a very hard task), it is better to use a retirement account, so you don't have to realize capital gains. Timing the market is probably a bad idea, but if you engage in market timing, it is probably better to use a retirement account than a brokerage account.

If you would like to tilt your asset allocation based on the market valuation, I recommend researching Shiller's Cyclically Adjusted Price to Earnings ratio.

  • 1
    My only other account is a Roth IRA that has a mix of some stocks and a target fund which I plan on dumping.
    – Jack
    Commented Dec 27, 2013 at 4:50
  • @JackMarchetti - If the Roth IRA only has US equities / bonds then your portfolio is not globally diversified. A globally diversified portfolio with country allocations based on market capitalization is thought of as the "default" portfolio and you have a heavy US bias. The Vanguard Total World Stock Index only has a 52.3% allocation in North America. If you are worried about US market valuations, your best move might be to reallocate to a globally diversified portfolio.
    – Powers
    Commented Dec 27, 2013 at 5:35
  • So do you think it would be easier to just dump 100% into the target date funds and deal with the 0.85% expense?
    – Jack
    Commented Dec 27, 2013 at 17:38

You need to look at all your investment as a whole. The 401K, IRA, and any taxable account need to be a part of the diversification and re-balancing. The fact you have regular deposits into the 401K needs to also be a part of your strategy.

Regardless of how much specific investments have gone up this year, you need to first determine how you want to be invested in large cap stock, small cap stock, bond, international, emerging markets...

Then you need to see where you are today compared to those investment percentages.

You then move the money in the retirement accounts to get to your desired percentage. And set the 401K deposits to be consistent with your goals. Many times the deposits are allocated the same way the balances are, but that is more complex if one of the sectors you are investing in exists completely outside the 401K.

When you re-balance in the future you will be selling sectors that grew the most and buying those that grew the least compared to their planned percentages. If all the moves are within the 401K and IRA then capital gains are not a concern.

Don't think of the different accounts as separate baskets, but think of them as a whole investment strategy.


First, accept the fact that you are not going to be able to predict the ups and downs of the market well enough for that to be a viable strategy. In the long run these schemes tend to be losers because it forces you to guess correctly twice (When to get out, when to get back in) and missing either date can cost you.

A better strategy to benefit from market volatility:

  • Dollar cost averaging - Invest a fixed amount at regular intervals rather than your opinion of what the market is going to do. This means you will buy less stock when it is expensive and more when it is cheap. It is an almost automatic way to follow the seemingly trite advice "Buy low, sell high". You are probably already doing this with your 401K
  • Make sure your portfolio is adequately diversified to protect you from excessive risk of a particular sector or economy tanking. Ideally do this over time in regular fixed dollar amounts for the reasons in my first bullet.
  • Gotcha. I'm sticking with 100% of my 401k in the S&P index fund and my ROTH is going with the Fidelity 4 in 1
    – Jack
    Commented Jan 2, 2014 at 19:15

I do the same thing with my 401k (100% S&P 500).

My strategy is to check it weekly. If the S&P falls by 10%-20% (based on risk tolerance, currently mine is 19%). I'll move all of it out into cash until I see 3-consecutive months of gains, then I'll get back in.

I don't have a lot of time to manage my investments, and this was the simplest strategy I've come up with so far. It served me very well in the 2008 crash.

I got out around 120 and returned to the S&P on 2009-06-29 around 90.

  • 1
    "If the S&P falls by 10%-20% (based on risk tolerance, currently mine is 19%). I'll move all of it out into cash until I see 3-consecutive months of gains, then I'll get back in." Then you are attempting to time the market. Over the years, that has proven to be far from optimal. Some of the largest market gains occur soon after drops. dailyfinance.com/2013/12/20/… Commented Dec 31, 2013 at 22:17
  • I agree with Joe. This strategy is going to cost you in the long run.
    – JohnFx
    Commented Jan 1, 2014 at 1:33
  • This is what I was thinking of doing but agree with others that trying to time things would be really difficult.
    – Jack
    Commented Jan 2, 2014 at 19:17
  • So, sell low, buy high? Doesn't sound so good to me. Commented Jan 3, 2014 at 19:33

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