Are you day trading your 401(k) at work?
Shame on you!
We all know that day trading is a recipe for disaster. Or do we?
What’s day trading you ask? Well, day trading is buying and selling investments during the course of the business day.
Why is that bad?
First a 401(k) is intended to be a long-term investment for your retirement. Second, it’s really, really difficult to time the investment markets.
Here are 6 reasons to not day trade your 401(k):
1. Your’re not smarter than The Street. Wall Street has legions of experts with years of experience. Plus, they have up to date research and Bloomberg terminals with every piece of conceivable information. They also can employ sophisticated risk lowering strategies. What do you have? You have a limited menu and your gut. Enough said.
2. Your gut feelings are probably wrong. Just like in #1, using your gut is probably not enough. I run into people everyday that tell me they got that “gut feeling” the market is about to drop. You may be able to predict one correction, but will you have that same “gut feeling” as to when to get back in? Better yet, will you be able to do it time after time? Very difficult at best.
3. There may be penalties. Yes, some 401(k) investments now assess a short-term trading fees. Usually these penalties are within the first 90 days of owning the investment. So this will dig into whatever small return you got for that day.
4. Volatility can work against you too. For traders, volatility can help create profitable trading opportunities. It can also create a nighmare. You really cannot predict how long or how intense a downturn will last. Furthermore, to my knowledge, there are no 401(k)s that have the ability to short a market. In my opinion, it’s just not worth it.
5. This is not a market to time. Is there ever one? Today’s market has volatility and conflicting news headlines. One minute things are great, and the next it’s the investment apocalypse! It’s hard for experts to diseminate this info, let alone the everyday Joe investor.
6. It’s real money. Don’t forget, you worked hard to save this money. Why would you play dangerous day trading games with it? You might be successful in the beginning, but sooner or later things will go the other way. Do you ever hear people talk about how much money they lost in Vegas or at the horse races? No one ever talks about how much they lost. They only talk about the one time they got it right.