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Ask Dave

Timing The Market

The stock market is down, and Stephanie is tempted to invest in her 401k while the prices are good. But is it the right thing to do for her?

QUESTION: Stephanie is about to stop her 401k contributions at work. She is tempted, though, to time the down stock market and put money in there while stocks are on sale. Dave strongly advises against that in this call from September 29, 2008.

ANSWER: I think you need more than $1,000 while you’re fighting through $90,000 in student loan debt. I would pay minimum payments on the student loan until you can get $10,000 or so built up, then you can go back after that student loan. Don’t start your 401k investing until you get the student loan paid off.

You don’t need a big, huge emergency fund. But get good, strong one. The reason being is that it’s going to take you a few years to work through this thing, and I don’t want you to only have $1,000 for emergencies during that time.