You need to maximize your IRA. Why? Because you can trade within your IRA without tax-consequences. Buy low and sell high. After selling keep the cash around until things go down again and it's time to buy.
An IRA is one of the best retirement accounts you can have, so you should put focus on getting it maxed out. (However if you get a match in your 401k you are throwing away free money to not take it, in general the difference between 401k and IRA doesn't make much a difference)
[1]: https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
This is just bad advice. You will most likely still pay brokerage fees and commissions which will eat away at your active trading.
Your IRA is supposed to be for retirement. Buy a broad-based passively managed, low-cost index fund. Reinvest divs. Make automatic purchases with automatic deposits. Close your eyes - and you will do phenomenally better than active trading.
Yet it seems many people make their living by doing trading? Are they all just gamblers who will lose in the end?
Are brokerages like ETrade etc. basically selling and advertising something like cigarettes, bad for your (financial) health?
For most people, yes. Active management of your own stocks in an IRA is almost always a losing proposition. That is, most people who do it will end up worse than if they just parked the money in a boring ETF.
> Doesn't that mean that all these Discount- and Non-Discount Brokerages are basically just selling us bad ideas?
YES. Especially the ones that advertise technical analysis tools during network prime-time. Those that are knowledgeable in that kind of trading aren't using some E*Trade web-based chart widget. They have a Bloomberg terminal or similar.
> Yet it seems many people make their living by doing trading? Are they all just gamblers who will lose in the end?
Some will. Those that make a consistent living at it spend a large chunk of their day exclusively focused on that task. They're unlikely to be doing it inside their IRA, and they're certainly going to be more sophisticated than the layperson planning for their retirement. This is kind of a tautology. The market is a zero-sum game, except replace "zero" with the performance of the overall market. For every trader that beats the market, there is another trader that under-performs by the same amount.
The traders that are beating the market are more likely to be the hedge fund managers or other sophisticated investors. That leaves the average Joes and other retail investors on the other side of the line.
> Are brokerages like ETrade etc. basically selling and advertising something like cigarettes, bad for your (financial) health?
No, I think that's a little too far. Cigarettes are an almost unmitigated bad. Tools that help investors participate in the market with low friction are amoral. But to the extent that their advertising glorifies the pretty charts, I think it's pretty bad.
The beauty of the financial markets in the US is that they are so accessible. But so are cigarettes.
And what do you do when things never go down (below your selling price)? Stay in cash for the rest of your life? The S&P in 2013 was at an all-time high. If I sold then, I would have missed out on a tremendous amount of growth. Today the index is about double the 2013 level (which was itself an all-time high).
So now that I've missed all this growth, what should I consider "buying low"?
The stock would always run up in the day before the event. If the announcement was good, it would run up more after the event, but either way things would calm down after a few more days, because there was no way that price was sustainable.
So every year you could make an extra 5% above the normal trend line for the stock by profit taking and buying back in immediately. The short term capital gains taxes would have eaten into that pretty hard.
Jobs leaving Apple was an even better window.
It's easy to point to stuff in history and say it was an obvious opportunity. Let's hear your predictions: what are you buying? Selling?
Having to pay short term capital gains taxes every time you want to take profits in a stock that sawtoothing upward is an example of that. Possibly the example.
To answer your question, I haven’t had anything that good since. I’ve fallen back to passive pretty much.
But that was a singular point in time. It would be like the reverse of a jackpot, IF you sold EVERYTHING just at that singular point in time.
But if you did a little bit of trading without tax-consequences continually, maybe you could win on average?
I agree the system is probably rigged with all the high-frequency trading and such. But I wonder if the best strategy is always to stay put in index funds. And banks make money by trading don't they?
All decisions to buy or sell happen in singular points in time. If you were sitting in front of your IRA account in 2013, it definitely looks like a high point, right? How much of your IRA equities do you decide to sell?
And whatever that amount, when do you change your mind and jump back in the market? When the stocks are at a new high in 2014? or 2015? or 2016? (All higher levels than the previous).
> But if you did a little bit of trading without tax-consequences continually, maybe you could win on average?
Maybe. But probably not. The only information you have is hindsight. You can never know if you're selling on a high or buying on a low. The price can always go higher (after you sell), and the price can also always go lower (after you buy)
> And banks make money by trading don't they?
The article we're discussing here shows that they make their money in a lot of ways. Beating the market isn't one of them, though. And to the extent that banks do profit on stock speculation, they also have a different risk tolerance than you or me. They're not going to retire one day, and if they do lose everything, the government will bail them out.
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If someone could actually do this consistently, then who cares about tax consequences? You can print money.
Think about a casino where your roulette-algorithm somehow gives 0.6 odds for red and 0.4 for black. Should you play? You might still lose everything because odds are just odds. You might win eventually but probably not like "printing money". Your odds of winning would be better than odds of losing. But you might still lose.
If you have money to invest you have to make a choice where to invest it. If you don't make a choice that is one choice as well. Keeping it in your wallet is one investment-choice as well. If you can trade with no tax consequences it would seem to me that sometimes the choice of selling and buying should be a better choice than choosing to do nothing. No?