by 
The Curious Bag
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<h4 class="dechead">On One Hand: Dollar Cost Average Throughout the Year
Dollar cost averaging is when you invest funds on a consistent basis throughout the year. Investments are made on a schedule, regardless of market conditions or your view of the future of the market. In the case of a 401(k), you would invest the funds received each pay period when they are received.
On the Other: Time the Market
You can hold new 401(k) assets in your account as cash until you believe the stock market is going to go higher. You only buy shares when you believe stocks are undervalued and poised to increase in value. Conversely, you hold new funds in cash when you believe the market will decline.
Bottom Line
Dollar cost averaging is considered the best approach to investing 401(k) funds. According to Dee Lee, author of "The Complete Idiot's Guide to 401(k) Plans," dollar cost averaging ensures that you continue to invest in the stock market as prices fall. Over the long term, this approach should reduce the average cost per share. It also takes the guess work out of timing the market, which many people cannot accomplish successfully.
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