Pay Attention!: Safe Driving Tip for the Road to Retirement

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Richard Schmitt

NEW YORK (TheStreet) -- Only 12% of retirement savings plan participants made at least one fund exchange in their accounts during 2010, according to a survey by Vanguard*. This same survey showed no more than 20% bothered to make a fund exchange in the each of the last 10 years. In other words, the vast majority of accountholders, perhaps overwhelmed by market uncertainty, watched the world race by as they sat stuck in traffic.

Even as market conditions have been quite volatile, the broad stock market, as measured by the Standard & Poor's 500 index, stands now about where it stood over 12 years ago. Since you get nothing from a buy-and-hold approach in this type of volatile market headed in no apparent direction, it is time to consider our final Safe Driving Tip No. 4.

>>Click here for other Safe Driving Tips for the Road to Retirement

Pay Attention!

Inertia works as well in driving as it does in portfolio management -- it doesn't. Accidents happen when inertia is not overcome by a driver's stops, starts, and turns to accommodate changing traffic conditions. Since the investment inertia of a buy-and-hold strategy misses out on opportunities for gains resulting from turns in the market, conventional investment advice calls for portfolio rebalancing, or periodic adjustments in the direction of investments to accommodate changing market conditions.

By buying low and selling high, portfolio rebalancing keeps asset class allocations at target levels through sales of higher performing asset classes that have become overweight and purchases of lower performing asset classes that have become underweight.

Before you can change direction though, you need to keep your eyes on the adventurous road to retirement. Only then will you be in a position to respond to market turns with a form of portfolio rebalancing taken to a new extreme - daily.

401(k) Day Trading

Since retirement savings fund options are generally valued but once a day at the market close, 401(k) day trading calls for daily fund exchanges in a balanced retirement savings portfolio comprised of stocks and cash. Each day you would either buy some stock when the market is about to close lower or sell some stock when the market is about to close higher.

The amount of each fund exchange between cash and stock depends directly on the daily change in a market index, such as the Standard & Poor's 500 index. Taking only a few minutes each day, your daily shifts between cash and stock amount to moving your stock position forward or backward in order to set up and capture lasting gains in retirement savings accounts, where fund exchanges do not result in immediate taxes or direct trading costs.