Day Trading Your 401k Account


Reader Question: I read an article recently about people day trading their 401k accounts in an effort to get higher returns as they approach retirement. Their reason was that the buy and hold strategy has not worked. What are your thoughts about this? R.J.
Answer: I’ve been in the day trading management business for over thirty years and in all that time I have yet to meet someone who has been successful at day trading over the long haul. The buy and hold strategy does appear to some to be broken but that’s because we’ve been in a decade-long bull market in bonds with a very weak stock market. In fact, from 2000 through 2009, the broad stock market had a compound annual loss of about 1% per year. The best question to ponder right now is what is likely to produce the best results over the coming decade? There appears to me to be very little opportunity in fixed income investments such as money markets, CDs and bonds while there’s a lot of upside potential in stocks and futures, but you need a Futures Trading Services for that. Public companies have used the Great Recession that was created by the banking crisis of 2008 to slash expenses (20 million people unemployed or underemployed) and store up cash. More conservative investors should consider U.S. blue chip dividend-paying stocks like AT&T,Southern Company and Exxon. As the eighty million Baby Boomers begin to retire, I believe these are the type of stocks they will seek out. You receive a decent dividend while you’re waiting for the stock values to grow. More adventurous investors should also find long-term opportunities in U.S. small cap stocks, technology stocks as well as emerging market and international stocks. 
Reader Question: I’m in my late forties and my children have graduated college so I no longer claim them as dependents on my tax return. Rather than raising my tax withholdings, I elected to increase my 401k contributions from 12% to 20%. It seemed to work as I still received a small tax refund. Is this a sound financial decision? R.H.
Answer: Brilliant! The dependent exemption is worth $3,800 for each child in 2012. By increasing your 401k by an equal amount, in general, you’ll offset the loss of the tax deduction. And the bonus is that you’ve created an asset and eliminated a liability! (Just kidding mom’s and dad’s!). As a reminder, for 2012, your maximum contribution to your 401k is $17,000 ($22,500 if you’re age 50 or older).
Reader Comment: One reader took exception to my answer to a question about ObamaCare. I stated that “…ObamaCare provides universal health care to all Americans…” He pointed out that it “…provides increased taxes to fund universal health care insurance or third party payer coverage through taxpayer programs…” He went on to point out that it does not ensure patient access to physicians, hospitals or other medical services. 
He also felt my statement that, “…lower income Americans will be added to state Medicaid insurance plans at no costs…” was misleading. He states, “The addition to state Medicaid plans may be at no cost to the lower income recipients, but it will most certainly involve a cost to federal and state taxpayers who are the ultimate source of funding for the Medicaid program.”