I was forced to time the market (kinda) and this was the result.
I left my previous job in June 2022. Up until that point, I had been contributing regularly to my employee sponsored 401K plan. The brokerage firm was Empower but all of my investments were held in Vanguard funds (VTSAX and VTBIX). All was fine and good (for the most part) for the time that I was employed at this facility, (about 16 years in total).
When I left the job, Empower sent me a leaflet on my ‘options’:
Option A: Keep your money invested in the plan with Empower Retirement.
Option B: Roll your money into an individual retirement account, individual annuity, or another retirement plan.
Option C: Receive money in installments.
Option D: Take money out of your account in cash.
Option C is out immediately because I am trying to grow this money over many years and I am fortunate enough not to NEED it at this moment in time.
Option D is even more OUT IMMEDIATELY because I am also not willing to take a 20% haircut on my 401K savings. I also would have to pay ordinary income tax on this amount.
So I was basically left with Option A and B. Keep my money at Empower or transfer to another retirement account. For me, the logical choice was to transfer this money to a Vanguard Traditional IRA account since my Roth IRA and taxable brokerage account was already established here. (I am also just madly in love with Vanguard! Low fees, investor owned, overall simple system….What is not too love)?
The idea of having the majority of my investments in one place (except for my military TSP and a very small HSA) was very attractive. It was one less account to check and fiddle with in my mind. The other thing that was very attractive about this idea was that the fees were significantly lower. The allocation goal was about 90/10 (VTSAX/VTBIX) but had slipped to 98/2. (Empower also randomly transferred about $6K from my Vanguard Bond fund to a Fidelity Bond fund this past year. So I actually had 98% VTSAX and 2% FXNAX). These funds (if held directly within Vanguard) have the following respective expense ratios 0.04%/0.025%. On the Vanguard site, the expense ratios were very easy to find and were clearly marked. On the Empower site, I could clearly see the fees being deducted but it was difficult to actually find the expense ratios listed. It seems as though about $30 monthly ($360 yearly) was being deducted from the account. The balance of the 401K was about 314K. This seemed to be an overall expense ratio of approximately 0.11% expense ratio (almost 3 times VTSAX). Now don’t get me wrong….0.11% is not a terrible expense ratio. It is far, far from the dreaded 1% that managed funds often have. I still just got to thinking….I could have EVEN lower expense ratios.
So for most of you, this probably seems like a no-brainer, right? Lower fees, everything in one place, easy peasy. Why not just do it? The reason I hemmed and hawed about this for several years was that I was AFRAID. Empower will not do a direct (or in kind) transfer to Vanguard. This is the process.
Step 1 - Sell all of your assets within Empower. (Pray that the market is at an all time high.)
Step 2 - A paper check from Empower is snail mailed to me within 7 days.
Step 3 - Deposit to Vanguard settlement account. (Luckily, I was able to use mobile deposit through their App)
Step 4 - Purchase the same exact investments that I just sold about a week ago. (Pray that the market is at an all time low.)
This process seems archaic to me. In the world of online direct deposits and transfers, this just seems like an incredibly inefficient system. Maybe this is part of the allure of just playing it safe and sticking with Option A. After all, they want to retain business.
I check all of my accounts monthly as part of my monthly net worth assessment and noticed that a few months ago, the expense deductions went from around $30 to around $100. I could not quite determine if they were changing to quarterly expense deductions, etc. I totaled up the last year of expenses and came up with $523.11, not the $360 I was expecting. This is an approximate 0.17% expense ratio. Again, not life shattering but I could do better. I decided to take the plunge and transfer the Empower 401K to a Traditional IRA at Vanguard. Let the nail biting begin!
This is the situation that I have always tried to avoid. I wanted to follow all those FIRE sayings to a ’T’! ‘Time in the market vs timing the market’. ‘If you don’t sell, you haven’t realized any losses’, etc. I KNOW! I’m trying to DO this! But alas, I found myself waiting for a snail mailed check for hundreds of thousands of dollars that have been cashed out of my investments.
As I once heard JL Collins say, “When you time the market, you have to be right TWICE…when you sell (hopefully high) and when you buy back in (hopefully low)”. I talked to my Chautauqua friend Bob on Friday, who is great at analyzing situations. Thanks Bob! We discussed that it is basically a gamble as to when to actually do it. Friday could be better, Monday could be better… Who knows? Friday VTSAX was at $123.37/share. I waited until Monday and pulled the trigger. Empower officially sold my investments at market close, Monday, May 6 at $124.72/share. Wow! Look at me! Maybe I can time the market (a little) and still make out!
Then I waited for the check to show up in my mailbox while simultaneously obsessively checking the price per share of VTSAX throughout the week.
Monday (May 6) 124.72
Tuesday (May 7) 124.84
Wednesday (May 8) 124.76
Thursday (May 9) 125.48
Friday (May 10) 125.62
Monday (May 13) 125.60
Tuesday (May 14) 126.31
Wednesday (May 15) 127.80
Finally on Monday night, amidst Subway and Air Duct cleaning coupons….There it was. A paper check for $314,408.49. I quickly logged into Vanguard and did the mobile deposit into my settlement account. I stalked the progress of the deposit on Tuesday but it was not ready to be invested until Wednesday morning. I did NOT like the price/share trajectory over the past week.
Wednesday was literally the worst possible day to buy back in. Again, I reached out to Bob and he kindly shared the Investor Policy Statement that he and his wife use to guide their financial choices. The idea of having an Investor Policy Statement is such a great idea because of our human weakness to completely screw things up. I could wait and wait and hope that the market goes down again to achieve my pipe dream of selling high and buying low, or, I could jump back in as fast as humanly possible and try to minimize damage. I chose the latter and jumped back in.
I did rebalance slightly to a 90/10 (VTSAX/VBTLX). I can only compare the before and after price for the 90% of VTSAX (to compare apples to apples). I sold at $124.72 and bought back in at $127.80. I did lose $6,819.56. Do I regret it? I don’t ‘think’ so… (How’s that for a wishy washy response)? It does make my life simpler and it had been weighing on me for the last few years. Unfortunately, I had some bad luck buying back in. Luck is really the key word here because timing the market is literally gambling. It just as easily could have gone the other way, and, of course, I wish it had. However, does it REALLY matter? This is such a rare thing to have to execute (hopefully never again!).
What do you think? Would you have pulled the trigger on this conversion? Do you have an Investor Policy Statement to guide you? Please share your story or comment below!
