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Trading The 401k Portfolio - Part II

Submitted by The Investment Shadow | RSS Feed | Add Comment | Bookmark Me! print

Retirement plan investment portfolios are managed to produce the promised income; 401k plans make no promises and do not seem to make much of an effort to offer income focused investment products. The income produced by the highest yielding (highest risk) mutual funds is generally lower than that which can be obtained from lower income tier Closed End Funds (CEFs).

So from a trading perspective, since portfolio management is often in the inexperienced hands of plan participants, both ETFs and MFs should be traded within pre-set buy and sell guidelines, so that market volatility in either direction can be taken advantage of.

Low Cost

Cost is absolutely lower in ETFs than in Mutual Funds, but I'm convinced that it is only misguided regulatory myopia that makes this an issue... particularly in a trading environment . If I buy a fund, an ETF, a common stock, bond, or a sports car and make a net gain on the sale of 10%, Scarlett, I just don't care about how much anyone else may have made along the way.

No 401k plan participant sees the commissions, fees, & charges that work their way into the NAV of the products they choose for their programs. If the product price rises, they can take the profit. If they don't trade their securities, it's on them.

So from a trading perspective, since portfolio management is often in the inexperienced hands of plan participants, both ETFs and MFs should be traded within pre-set buy and sell guidelines, so that market volatility in either direction can be taken advantage of.

Why bother to trade ETFs or Mutual Funds?

Because it's your money and the ultimate managers of 401k plan investment products are people who are likely to know very little about investing. Keep in mind, that at the extremes of the market cycle, your 401k product holdings become virtually unmanaged entities... where will they be (in market value) when you need them most?

The real difficulty could well be getting the job you want done, when you want it done. Equity markets can lose significant percentages of their market value very quickly, as evidenced by the MCIM "Three Major Meltdowns" exhibit below:

                                                                        Three Major Meltdowns

The majority of individual investors who are not traders, overwhelmingly prefer to be passive with their personal investment programs, IRAs, Education Accounts, Trust Accounts, etc... lulled to sleep in a hammock of Mutual Funds and ETFs, not unlike the mix that is force-fed to 401k participants.

The answers to these two questions should make it clear to you that trading is an essential feature of the retirement planning/investing process.

  •  What happens to my investment program when the stock market goes down significantly?
  •  Where does the retirement income come from when I need to start spending it?

Can I obtain an actively "traded/managed", income focused, portfolio my 401k Plan?

Yes, you can.

You can have a series of individually managed; age and risk tolerance sensitive; retirement-income-growth focused; Investment Grade Value Stock and paying-through-the-financial-crisis income CEFs only portfolios.

Such portfolios generate higher levels of income than either ETFs or MFs (regardless of the asset allocation), and every individual security is actively traded within stated buy and sell price parameters. When equity prices are frothy, cash positions are high from profit taking and limited buying prospects; when prices fall, cash is reinvested slowly as buying opportunities reappear.

Income grows monthly because of "cost based asset allocation" and portfolios are one-for-one transferable to privately managed IRAs whenever the participant chooses to retire or to change employers.

So yes, you can find a trading based 401k program that you don't have to worry about... but "big brother" requires that you get your own professional 401k adviser/provider to find it for you. He or she can start by contacting me... but expect some resistance.

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