Disillusioned with the conventional buy-and-hold approach after two… (Spencer Platt / Getty Images )
Americans worried about running out of money in their golden years are trying a new investment strategy: day trading their retirement funds.
Disillusioned with the conventional buy-and-hold approach, baby boomers are anxious to improve their retirement prospects after two punishing bear markets in the last decade.
Some people are trading the mutual funds in their 401(k) plans more frequently. Others are venturing into options. And some aggressive investors have begun day trading their nest eggs — all in a bid to make up for lost time.
FOR THE RECORD: Retirement funds:
An earlier online version of this article said Americans are a collective $6.6 billion short of the amount they need to retire comfortably, according to a 2010 study. The correct figure is $6.6 trillion.
"A lot more frequent trading is happening," said Chad Carlson, a financial planner based outside of Chicago. "People are saying, 'I'm that much closer to retirement so I have to do something.'"
That thinking prompted 49-year-old Vlad Tokarev to start day trading his three individual retirement accounts last year.
The Minneapolis biomedical software engineer wants to quit working before age 65. But after watching his 401(k) get pounded in the last bear market, he fears that another plunge in the stock market could wreak havoc with his plans.
Minutes before the market closes every day, Tokarev buys or sells a mutual fund linked to the Standard & Poor's 500 stock index. His goal is to profit from temporary fluctuations in stock prices, so he buys when stocks are falling and sells when they're rising.
"I didn't see a lot of returns using the buy-and-hold method," he said.
Most Americans with IRA or 401(k) accounts embrace the "set it and forget it" philosophy. Only about 15% of investors made any change to their 401(k)s last year, according to benefits firm Aon Hewitt.
But among those willing to make shifts, there's a growing inclination to do so more frequently as retirement approaches, according to some financial planners. These experts sympathize with investor frustrations but predict that this type of trading will backfire for most.
Day trading was popular during the bull market of the 1990s, when investors moved in and out of stocks dozens of times each day seeking a quick profit. It was considered a risky practice at the time, and the technology crash a few years later wiped out many day traders.
"You get the guy who hits the home run who everyone wants to be like, and then you get the guy who is the big loser," said Winfield Evens, a partner at Aon Hewitt.
The average 60-year-old has only $114,500 in his or her 401(k), and half have less than $37,300, according to Aon Hewitt. Americans are a collective $6.6 trillion short of the amount they need to retire comfortably, according to a 2010 analysis by the Center for Retirement Research at Boston College.
Those type of numbers have even helped spur a cottage industry for advisors who preach the benefits of trading 401(k) and other retirement accounts.
Richard Schmitt, an adjunct professor at Golden Gate University in San Francisco and a former retirement plan consultant, has come out with a book called "401(k) Day Trading: The Art of Cashing in on a Shaky Market in Minutes a Day." The book, published in October by Wiley Trading, has a list price of $49.95.
"I've seen so many people make their 401(k)s into 201(k)s," Schmitt said of day trading. "This gives you the opportunity to make it into an 801(k)."
Schmitt has been day trading his 401(k) account for four years, during which time, he said, he has beaten the S&P 500 by 15.2%.
Todd Larsen, a mechanical engineer from Willow Park, Texas, runs http://www.401ktradingsystem.com, a website that advises followers to shift their money once a month. The site, which charges a one-time fee of $199, says it recommends safe money-market funds about 75% of the time and guides people into higher-risk stock funds only "when conditions are very favorable for a gain."
Younger Americans who have been frustrated by the market also are trying their hand at day trading.
Joe Hansman, 29, who handles customer complaints at Wells Fargo, shifts money among two conservative mutual funds in his 401(k) and the banking company's own stock. He trades 10 to 15 times a month, steering money into Wells Fargo's stock when he expects it to rally for a few day.
"When I told my wife about it she was really nervous … until I educated her on what it all entails and how poorly [the 401(k)] was performing before that," Hansman said. "She's still not 100% behind it but she said, 'Just don't lose everything. If you do I'll divorce you.' "
The fund industry frowns on day trading, which it says raises costs for other investors, and imposes fees and restrictions to prohibit it.
Schmitt and others circumvent the rules by using multiple accounts — buying in one and selling in another — to mask the frequency of their trading.