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401(k) Day Trading Leads the Pack Halfway Through Public Trial

By Richard Schmitt

NEW YORK (TheStreet) -- The ponies may not be racing in most parts of the country these days, but investors with different track records are always jockeying for position in the management of their retirement savings.

Starting last week, a rebalancing strategy known as 401(k) day trading took on three better known contenders in its second annual public real-time trial. Halfway into this two-week public trial, 401(k) day trading has raced into the lead over market index, balanced and cash portfolios.

This second annual public trial offers spectators a real-time feed via Twitter of the once-a-day action derived from tracking the day's market conditions. More specifically, a daily tweet @401kDayTrading posted 5 minutes before the market close describes that day's incremental transfer between low-cost stock index and cash mutual funds in retirement savings accounts based on the daily change in the stock market.

On days when the stock market is about to close up, the 401(k) day-trading strategy calls for a transfer from an S&P 500 index stock fund to a cash fund. Conversely on days when the market goes down, the strategy calls for a transfer from cash to (S&P 500 index) stock.

Starting with a portfolio evenly split between cash and S&P 500 stock funds, the amount of each transfer is determined as $1,000 for each one-point change in the S&P 500 index as of 5 minutes before the market close, as adjusted for any change in the prior day's S&P 500 index between the time of the trade and the market close.

When the race began last Monday, all four entries stalled or lost ground out of the gate as the market declined four successive days. Then some daylight appeared with Friday's great stride forward in the market. By week's end, 401(k) day trading's gain of 0.32% led all of its contenders.

At the half-way point of this two-week public trial, cash was placing (running second) by returning next to nothing. Holding a static portfolio initially split evenly between cash and stock was showing (in third place) with a loss of 0.02%. Bringing up the rear in fourth place was an S&P 500 index stock portfolio with a loss of 0.04%.

Although designed more for its performance over the long haul, 401(k) day trading also beat holding S&P 500 index stock by more than half in last year's public trial.

The 401(k) day-trading strategy gains its edge over its contenders by capitalizing on the market's daily ups and downs, with no drag from current income taxes or direct trading costs. This week, stay tuned for daily tweets @401kDayTrading 5 minutes before each day's market close to see how 401(k) day trading actually works in its second annual public trial.

Richard Schmitt is an actuary, adjunct professor of Finance at Golden Gate University, and author of 401(k) Day Trading: The Art of Cashing in on a Shaky Market in Minutes a Day.

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