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Old 02-16-2016, 12:01 PM
 
772 posts, read 907,326 times
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Hello,

I took out a 401K loan last year.

I owe $14,000


I can now afford to re-pay the entire loan right now if I choose.



My question is, when I took out the loan, my 401K was doing pretty good, now that the market has tanked, if I choose to re-pay the loan now, do I "buy in" at the stocks at todays prices, or does it just go back to what it was ?


What I mean, is there is some strategy as to when to re-pay the loan then ? If I think the market is going to keep going down, I shouldn't pay the loan back right now ...

if I think the market is going to go back up, I should pay now. .


how exactly does paying back the loan work, where exactly does the money go ?

say I only own one stock... and it was at $100 / share when I took the loan,

and when I pay back part of the loan every week, if the stock is at $50 / share, am I actually getting twice as many shares ?


Or, do the number of shares that I own, stay the same, and the money just magically goes back into the account, and the current price of the stock doesn't mean anything for the purpose of paying back the loan ???
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Old 02-16-2016, 12:22 PM
 
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Typically if you pay your loan back either in scheduled payments or a lump sum it gets allocated based on your current investment allocation. If you are worried about the market you should be able to changed your contributuon allocation to cash or a short term equivalent, pay back the loan and then when you see fit move money from the cash equivalent to other asset classes.
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Old 02-16-2016, 07:48 PM
 
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So if I repay $14,000 tomorrow, it basically buys in according to tomorrow's prices ?

For the sake of the argument, if it was $100 / share when I took out the loan, and $50 / share tomorrow when I repay the loan, and 3 months from now the shares are back to $100, then technically taking out the loan actually made me tons of money ?

Am I understanding this correctly ?
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Old 02-16-2016, 07:58 PM
 
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Quote:
Originally Posted by 191185 View Post
So if I repay $14,000 tomorrow, it basically buys in according to tomorrow's prices ?

For the sake of the argument, if it was $100 / share when I took out the loan, and $50 / share tomorrow when I repay the loan, and 3 months from now the shares are back to $100, then technically taking out the loan actually made me tons of money ?

Am I understanding this correctly ?
It wouldn't have made you anything, saved you some yes but didn't make you money
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Old 02-16-2016, 08:03 PM
 
Location: NC
940 posts, read 962,314 times
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To answer your question, the answer is yes, you were very fortunate in your timing. Where you will make money is when(if) the stock or fund goes up in value, you will get the benefit of buying in at a lower price. Better to be lucky than good any day, I always say .
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Old 02-16-2016, 08:23 PM
 
Location: Florida
6,593 posts, read 7,241,569 times
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when you took out your loan part of your investments would have been sold and the cash from the sale would go into your 401k. Then the cash would go to you as a loan.

As mentioned above you are lucky because you will get more shares of stock than you sold since the market is down.

Since the 401k is a very long term investment I would just repay the loan. Timing the market is hard. But if you want to hedge a little you could repay over a month, 3 months etc if your plan allows. Your plan might limit repayment to a payroll deduction so you might have to repay over a few months.
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Old 02-16-2016, 08:36 PM
 
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I was in the same position. And yes, you successfully/Luckily have timed the market, essentially the 14 K of your money was prevented from taking the losses in the market.
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Old 02-17-2016, 04:01 AM
 
928 posts, read 3,429,971 times
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I consulted with my 401k plan administrator (and this forum) a few months ago and was advised exactly the opposite. That it doesn't make any difference. Now I'm feeling confused.

I borrowed 18k in April of 2014 on a fifteen year note. I only planned to keep the money out for 2 years, but the small payment allowed me to keep my cash reserves up while I tackled a HELOC loan...all used to purchase a home and avoid any PMI which saved me around 7k in the end. I'm set to repay the 401k loan in a few weeks here. So am I truly going to gain from having borrowed when the funds were high and repaying when the funds are down?

I thought that when they put the money back it would average out, or be treated as if, it were never absent.
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Old 02-17-2016, 07:01 AM
 
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Right - the 401k loan can be seen as a secure fixed income type investment, from an asset allocation perspective. Just like when the market goes up, you miss out on any gains you could have made - when the market goes down the 401k loan fund is protected. So let's say you are going for a 75/25 stock to bond mix, if the 401k loan is 25% of your total balance, then the rest of your funds should be stock.
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Old 02-17-2016, 08:33 AM
 
26,145 posts, read 21,364,265 times
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Quote:
Originally Posted by TheWayISeeThings View Post
I consulted with my 401k plan administrator (and this forum) a few months ago and was advised exactly the opposite. That it doesn't make any difference. Now I'm feeling confused.

I borrowed 18k in April of 2014 on a fifteen year note. I only planned to keep the money out for 2 years, but the small payment allowed me to keep my cash reserves up while I tackled a HELOC loan...all used to purchase a home and avoid any PMI which saved me around 7k in the end. I'm set to repay the 401k loan in a few weeks here. So am I truly going to gain from having borrowed when the funds were high and repaying when the funds are down?

I thought that when they put the money back it would average out, or be treated as if, it were never absent.
This is in correct the borrowed money would be subject to any lost gain or depreciation
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