Why Front-Loading Is Part of Our Investment Strategy

June is a big month for us financially because it’s when we finish front-loading our 401(k) accounts for the year. Front-loading is when you max out your 401(k) contributions as soon as the new year begins, to the extent allowed by the IRS, rather than spreading them out over the year.

Contribution limits

This year’s contribution limit is $18,000, with an additional $6,000 catch-up contribution limit for those 50 and older.

401k Plan Limits for the Tax Year 2016

Courtesy of 401khelpcenter.com

Some people contribute enough to get their employer’s 401(k) match, but saving just enough to meet the match means you’ll be working well into your retirement. It would take about 70 years for someone saving 4% of their income to retire.

If you have a lower income and saving the bare minimum to get the match is the best you can do right now, that’s a great place to start. Starting somewhere is preferable to not saving at all!

Contributions can be increased as your income level increases or your liabilities decrease. We are saving the max because we can save a lot more money by leading a low-cost lifestyle. Saving for early retirement/financial independence is also a top priority for us, so we go all in, baby!

Front-loading versus dollar cost averaging

There are different viewpoints on whether it is better to front-load vs. dollar cost average (making contributions throughout the year as you get paid). Bloggers such as MadFientist have written extensively about the advantages of front-loading. Instead of reinventing the wheel, we’ll explain why we do it, and you can read his post and conduct your own research to determine whether front-loading is a good option for you.

One of the best things about blogging is that having to write about a topic forces us to really understand it. We need to understand things thoroughly in order to explain them, which requires us to dissect every investment decision we make with a scalpel.

Investing, like anything else in life, requires understanding the purpose of your actions: Why should we allocate our money this way? Why should we buy this now rather than later? Why, why, why?

The rationale for our front-loading

1. It feels great to have your money invested early!

A millionaire once told me that focusing on one thing at a time was the key to his business success. If he was going to start a new business or project, he would devote months to it. He’d learn everything he could about the company and move on to the next project only after completing the current one.

That advice has stuck with me over the years, and I try to finish one project before moving on to the next. Once we’ve finished front-loading, we can invest the remainder of our funds in other projects.

I also dislike dragging things that are easily handled (wifey may have a different opinion on this when it comes to a few house chores). 🙂

Putting our money to work on front-loading in the first half of the year frees up the rest of the year to focus on other investment objectives. The best part is that front-loading makes investment sense because the money invested begins to grow and earn dividends sooner.

2. There is no penalty for front-loading.

There is no penalty for us to front-load our accounts. Our company provides a “true-up” match contribution. After we’re done front-loading, our employer stops adding the match because we’re no longer contributing to the 401(k)s.  They will total the missed match amounts and deposit them into our accounts at the start of the following year.

A word of caution: if your employer does not provide a true-up matching contribution, you’re better off investing throughout the year to avoid leaving money on the table.

3. We prefer to invest in lump sum

Assume we decide to dollar cost average our contributions over the course of the year. The truth is that the extra money in our paychecks will be invested regardless, so why not invest it in non-taxable accounts first?

Others argue that you should dollar average to avoid investing it all at once, but Vanguard conducted a study and concluded that the best course of action when you have a large sum of money to invest is to make a lump-sum contribution:

“We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use. Of course, any emotionally based concerns should be weighed carefully against both (1) the lower expected long-run returns of cash compared with stocks and bonds, and (2) the fact that delaying investment is itself a form of market-timing, something few investors succeed at.”


4. We try to avoid market timing

We’re not in the market-timing business. I tried it before, failed, and learned some valuable lessons. When it comes to market timing, you must be correct at least twice: when you buy and when you sell.

Have you ever seen a driver shift lanes to avoid as many cars as possible in a traffic jam?

They’re probably exhausted from the activity, but they think they’re winning because they’re “taking action.” They cut in front of others aggressively, hit the brakes frequently, accelerate, and change lanes, while you stay in your lane, relaxed and minding your own business. The lanes clear up 10 minutes later, and you see the same driver right next to you! All of their anxiety and lane shifting got them nowhere.

It’s the same with the stock market. You can buy and sell frequently, very frequently, in the hopes of making a short-term profit, and you may end up underperforming the investor who invests in stocks of solid businesses for the long term and spends the rest of his/her time at the beach with his/her family.

We are long-term investors who prefer that our money can start growing right away. And, yes, the market may crash after we buy, but who knows what the market will do? No one really has a a crystal ball. At any point when the market is open, one thing is certain: the market will either rise or fall.

Since we don’t know what the market will do, the best time to invest our money is now. Let it work its magic by earning dividends that can be used to buy more investments when the market falls. We don’t have to worry or lose sleep about this if we use a proper asset allocation.

5. Defer taxes

When we front-load, we are effectively deferring a portion of our federal taxes. As long as there are no penalties, we prefer to pay the taxman on the last day possible and earn interest on that money. The money we front-load is not taxable, putting us in a lower tax bracket for the first half of the year. As a result, we fund the 401(k) first and then pay Uncle Sam.

6. Protect your 401(k) contributions in the event of a job loss

Another reason we prefer to front-load is that if we lose our jobs, we won’t be concerned about not being able to max out our 401(k) accounts. This aligns with our FI strategy of investing first, then spending, and only on things that add value to our lives. It’s how we stopped living paycheck to paycheck, accumulated FU money, and are preparing to reap the benefits of our financial independence.

Watch out world! We’re coming!

Do you prefer to make larger 401(k) contributions up front or spread them out over time?


After dedicating 13 years of his career to Vanguard, José retired from the corporate world at the young age of 44. During his tenure at Vanguard, he expertly coordinated the production of both electronic and print educational materials for 401(k) participants. Now, he relishes in his early retirement, cherishing time spent with his family, indulging in his favorite hobbies, seeking out new experiences, and savoring meals in the comfort of his own backyard.

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4 years ago

I just found out about your site from PoF. I used to contribute an equal amount per paycheck in order to get the company match, dollar cost average, and have a large enough paycheck to meet other financial needs. Back then my company didn’t do the true-up.

After a certain time I started front loading, plus aggressively paying down my mortgage, because I had uncertainties about my job lasting through the year. The company had been sold once or twice already. Luckily my company eventually also started doing true-up, which was useful as I could see how much money I was leaving on the table by front-loading without it.

I’m still a fan of front loading, but I’d advise anyone whose 401(k) doesn’t have true-up to optimize their contributions so they continue to get the company match throughout the year. They can still do the bulk of the contributions earlier in the year, then adjust their contribution rate downwards for the latter part of that year.

4 years ago
Reply to  Lynne

Hi Lynne,
Yes! I totally agree with you and doing the bulk upfront and then adjusting to get the match is a great idea. No need to leave money on the table unless you plan to leave your job. Thanks for commenting.

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