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Anxious investors day trading with retirement accounts

Baby boomers and others worried about the lack of money in their 401(k)s and IRAs are day trading within their retirement accounts.

July 09, 2012|By Walter Hamilton, Los Angeles Times

Trading also has been made easier by the increasing availability of so-called brokerage windows, which are accounts within 401(k) plans that typically allow daily trading in funds and stocks. About 29% of companies offer them, up from 12% a decade ago, according to Aon Hewitt.

Among the companies offering brokerage windows are Home Depot Inc. andHewlett-Packard Co.

Brokerage windows typically are used by experienced investors with higher incomes and larger 401(k) balances. The average person with such an account trades more than 20 times a year, according to Charles Schwab Corp.

Some people are trying another potentially risky tactic to overcome the weak market — trading stock options in their IRA accounts.

They agree to buy a falling stock, or sell a rising one, in exchange for a set payment. The goal is to pocket steady fees without having to buy or sell at inopportune times.

As many as 40% of people trading options at the Motley Fool do so in retirement accounts, said Jeff Fischer, an options advisor at the investment website.

"There is — I don't want to use the word 'desperation' — but it's close to that," Fischer said. "Ten years of a flat stock market bumps up against reality for people in their 50s or 60s who are running out of time to see appreciation" in the stock market.

Prudent options investing can generate annual returns of 6% to 12%, Fischer said. But there are risks, including being forced to buy stocks as they plummet in price.

"We have had a few sad stories like that," Fischer said.

Trading options can be scary, said a retiree who uses options to boost his income.

"The very first trade, my palms were sweating so badly that I almost drenched a keyboard," said the man, who asked that his name not be used.

But he has made money over time, he said.

"I want to do the things in retirement that I have always wanted to do," he said. "Traveling has been at the top of our list, and options [have] helped finance going to some very nice vacation spots."

Tokarev, the software engineer, said he is careful not to take excessive risks. He trades only one-third of his retirement savings. And he believes that day trading is safer than entrusting his retirement savings to Wall Street.

At best, he and others foresee a flat market that will deliver middling returns at best. The risk, as they see it, is not doing anything. But experts say that for many, day trading may not be worth the risk.

"That's what people usually say about day trading — but I don't see how it can be dangerous," Tokarev said.

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