From the department of Very Bad Ideas comes this: day trading in a 401(k) account. Oh, where does one begin?
First, let me say that day trading is a fine way for the right people to make money. It takes a certain temperament, though, and not everyone has it. I would never recommend that anyone day trade, and one reason that I wrote the book was to give people who shouldn’t be day traders ideas for other ways to invest.
One trader I know says that trading is all about video games and psychology. Are you good at that kind of fast strategic thinking? If so, day trading may well be a good fit for you. But my bet is that most people do not have that mindset, and that someone who takes up day trading out of fear or greed is going to run into trouble quickly. Good traders can set their emotions aside, and that is impossible if the very attraction to trading is emotional.
I know that people are feeling panicky about their retirement prospects. It’s really hard to live on your savings when interest rates are practically zero, and overall rates of return are making even diligent savers fall behind. The only real advice is to save more, diversify more (and not into yet another growth fund, but rather an international fund or something like that), and take the long view.
In fact, I would argue that day traders need low-risk retirement investments – probably a SEP-IRA instead of a 401(k), depending on how the trading operation is structured. Each quarter, a trader should take out some portion of profits and transfer them to a low-risk long-term investment in order to diversify and provide some cushion for the day when the markets are just too goofy to take anymore.
Retirement money is long-term money. Day trading can be a fine productive hobby for many people, but you shouldn’t trade with money that you can’t afford to lose.
