The company I work for allows us to move funds in our 401(k) plan to and from a wide variety of mutual fund selections as often as we wish... even daily... at no cost.One of my coworkers brags about moving his funds weekly into the 2 or 3 funds with the highest returns. He says that way he's always guaranteed a positive return, and there's really no risk and no charges for doing so. He likes to use a "cash" example... "why keep $1,000 in an account that pays 8% one day and then losses 4% the next, when I can move those funds to accounts which pay up every day."I'm a "buy and hold" kind of guy, with most of my 401(k) funds invested in an S&P Index fund. But I'm curious, are there any dangers to moving my funds back and forth so frequently just to stay ahead of the index?
Fools would suggest your friend to doing daily market timing decisions and probably momentum investing. So far he has been lucky, but in the long run his 401K provider is probably going to be unhappy with all those transactions and the associated costs and his returns will probably not much exceed the averages.So go for the long term and stick with the index fund as your core investment. Partial participation in hot sector funds can be OK as long as you are comfortable with the risks. But daily changes in positions, I'd say no way.
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