Richard Schmitt - 401 (k) Day Trading

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Copyright 2011 by Richard Schmitt. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Schmitt, Richard, 1956
401(k) day trading : the art of cashing in on a shaky market in minutes
a day / Richard Schmitt.
p.cm.(Wiley trading series)
Includes index.
ISBN 978-1-118-08541-7 (cloth); ISBN 978-1-118-12821-3 (ebk);
ISBN 978-1-118-12822-0 (ebk); ISBN 978-1-118-12823-7 (ebk)
1. 401(k) plansManagement. 2. Retirement incomeUnited StatesPlanning.
3. Day trading (Securities)United States. 4. Portfolio managementUnited
States.I. Title.II. Title: 401(k) day trading.
HD7105.45.U6S359 2011
332.0240145dc22
2011015867

To Mom, who told me that I could.
To Dad, whose fantastic spirit is my compass.
To Wendy, who made it so that I did.

Preface

Have you ever felt like an outsider hoping to get a glimpse of what actually is going on behind the scenes in your 401(k) plan? Wading through all of the financial and legal jargon involved in participating in a 401(k) plan can be an overwhelming and not all that exciting task. Who knowsmaybe it could be like a sausage factory, and you would not want to know what goes into it. This is not really the case. Instead, you should appreciate that government policy makers, plan sponsors and their staff, and other experts put much thought, time, and energy into developing, implementing, and administering savings vehicles to help you save for a secure future. This book is your backstage tour through retirement savings vehicles, such as 401(k) plans, showing you how to profit in these current uncertain times through day trading your retirement savings portfolio.

Like sausage, these plans are made up of a myriad of ingredients, such as layers of savings and investment options, interwoven with structure, like tax law and other rules. It is all in how the ingredients are used that makes the difference between producing a mediocre or an exceptional result. Over time, sausage makers have modernized their operations to make more sausage with the same amount of ingredients. That is good news for its primary ingredientthe pigswhose numbers are not being depleted as rapidly.

Likewise, financial institutions have adopted technology to efficiently administer more 401(k) accounts. Yet, for all the technology devoted to administering 401(k) plans, it is the individual 401(k) account holders who are still leaving money on the tablethey are not making the most of their investments in their 401(k) accounts. To take a lesson from the sausage makers, it is time for 401(k) account holders to adopt a new approach in using the same old ingredients to yield more product.

The goal of most investors is to accumulate wealth through the investment of savings. To do this requires some planning and strategy. First and foremost, 401(k) investors need to save; for without savings, there are no investment opportunities. Then they need to invest their savings so as to get the best return on investment. Ideally they accomplish this through careful selection of securities and impeccable timing of their purchases and sales. This is easier said than done. In reality, the investment selection and timing processes can be pretty subjective and challenging even to investment professionals.

Yet there are certain elements of the investment process within your control, and every 401(k) investors control, that can better your chances of generating higher returns on your hard-earned savings. It is always wise to follow conventional investment theory emphasizing portfolio diversification and a long-term perspective toward investing. At the same time, you need to take care to lessen your exposure to risk as you age and your investment time horizon shortens. Security becomes paramount as you get older and have less time to turn around any poor investments that do not pan out.

The 401(k) plan offers you a special environment with additional opportunities to build retirement wealth. Not only can you enjoy the convenience of automatic savings through payroll withholding, but you also consequently enjoy the benefits of dollar-cost averaging for stock purchases made on a regular periodic basis from payroll savings. Then you generally get to invest in professionally managed investment options carefully selected by your employer. In addition, 401(k) plans as well as other retirement savings plans offer you special tax treatment and cost savings not available through regular savings and brokerage accounts.

Another area of opportunity within the investment process garnering more attention, as well it should, is the control of investment expenses. Year after year, expenses reduce investment performance and eat away at account balances on which investors may eventually rely for support in their retirement. Given the right information in a transparent way, you and every other investor can improve your investment returns by managing your investment expenses. This means you need to select investment options that charge expense levels worthy of the returns they generatenot necessarily the lowest-cost funds, but funds whose performance justifies the expense charged.