Day Trading Your 401k is a Recipe For Disaster

I love when people try to convince me that they can time the market and day trade their 401k.

That they honestly believe that they can pull their money out at the peak and consistently do this to where they will never lose money.

Unless you have some crystal ball that I’m unaware of or there was a major called “Market Timing 101″ that I missed on my school’s class curriculum, then the chances of you timing the market are slim to none.

Even worse in your 401k since selling or buying your funds does not typically settle on the same day.

To all my 401k market timers, this video’s for you….

Have a co-worker that thinks you need to day trade your 401k? Be sure to send this video to them.

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Comments | 8 Responses

  1. says

    People do this? I don’t day trade individual stocks, let alone indices. My 401k is strictly buy and hold &P500 index. It’s the lowest fee fund they offer, so that’s the on I use. I might add a bond fund to the mix later on, but I’m so far from retirement age that it’s not really an issue right now.

  2. says

    There’s another version of this, which is not quite as destructive, but also hurts long-term performance: going to cash in your 401k after the market falls. I’ve talked to a number of people who convince themselves that their 401k will drop to zero when times get tough, and sell when the market takes a hit, only to buy back in at much higher prices.

  3. says

    Obviously Jeff Rose did not read Richard Schmitt’s Book “401(k) Day Trading: The Art of Cashing in on a Shaky Market in Minutes as Day”, so he does not really understand how 401k day trading is done.

    I am doing 401k trades daily for more than a year since I read the book, and my 401k is beating S&P500 by about 2%. And this is considering that S&P500 was growing steadily last year without significant drops. Check out the link to my website above.

    • says

      @ Vlad Obviously I haven’t and the problem with most people that do day trade their 401k, they haven’t ready any book on the subject. They just do it because they think they are doing the right thing.

      The fact you’re only beating the S&P500 by 2% with “day trading” isn’t saying much. There are plenty of actively managed funds (not sure if your 401k plan has them) that have done that this year (and then some) without having to day trade. By taking on more risk and trying to time the market, it seems you would have been up considerably more.

      • says

        @Jeff: If you have not read the book, then you cannot simply tell “401k day trading is a recipe for disaster”! Simply putting money into the stock market could be a recipe for disaster if you do not know what you are doing. I know exactly what I am doing and I have proof – it is on the site I mentioned.

        I know beating S&P500 by 2% does not sound a lot, when the S&P had a great year of 14% growth. However the trading method described in the R.Schmitt’s book still allows you to beat S&P even when the market is down. And this is done without even taking any risks. When people hear “day trading”, the assume it is a huge risk associated with it, however it is not the case.

        Please read the book!

  4. says

    @Jeff: I’d be a rich man if I knew when the market will collapse and when the market will skyrocket. But I don’t. So beating the S&P500 by 2% is a dig deal compared to the fact it never happened in my 401k. Even Warren Buffett could not beat S&P500 in 2011: (http://goo.gl/X62Su). He beat the S&P in 2012 by 3 percent, so for me 2% is quite good enough.

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