These IRA Strategies Aren't for the Timid

Readers tell Dagen how they've become more aggressive in their retirement accounts.
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Telling

TSC

readers to be aggressive is like preaching the merits of the triple-digit return.

You get it. No explanation needed.

Last week's

column encouraging readers to be more aggressive in tax-deferred IRAs brought a flood of supporting email.

The question, it seems, is not whether to be more aggressive, but how.

And many of you already have figured out creative ways to amplify your IRA investments -- from buying stocks and popular growth funds to betting on high-tech initial public offerings.

If you have more than 10 years to invest, you should be able to shoulder some extra risk with your retirement assets, hopefully in exchange for some extra return.

"I have been doing exactly what you suggest with my and my wife's IRA for about three years," writes

Kent Newsome

. "I have a regular portfolio with roughly half in mutual funds and half in individual stocks. For many reasons, I am a buy-and-(mostly)-hold investor. ... But with our IRAs I am a lot more aggressive," Newsome writes.

"I have

Internet Capital Group

(ICGE)

and

Merck

(MRK) - Get Report

(which I am probably going to sell in favor of a biotech fund) in mine, and

Dell

(DELL) - Get Report

,

JDS Uniphase

(JDSU)

and

(MFOCX) - Get Report

Marsico Focus in my wife's. Because of the lack of tax consequences, I am much quicker to take profits in the IRAs."

One reader takes that aggressive stance even further.

"I trade individual stocks in my IRA," says

Jerry Runner

. "In April 1998 I started with $23,000 and moved it from a mutual fund to a single stock:

Infoseek

. I sold in January of 1999 for a $20,000 profit. . . . I currently hold

BEA Systems

(BEAS)

and

Biotech HOLDRs

(BBH) - Get Report

."

Whoa, putting everything into just a couple of names may be a little too much concentration (though with the

Biotech HOLDRs, you at least get 20 stocks for the price of one). You can be aggressive without exposing your assets to undue risk.

Many readers choose to stick with mutual funds.

Janus

and

Fidelity Select

sector funds are very popular.

"I use Fidelity Selects for my IRA, which is presently divided equally between

(FSELX) - Get Report

Select Electronics,

(FBIOX) - Get Report

Select Biotech and

(FSDCX) - Get Report

Select Developing Communications. I am 57, but what the heck," writes

John Montague

.

But some readers who are determined to make their own investing decisions find they're forced to fight their brokers and advisers when they want to be more aggressive.

"I had a big fight with my

Merrill Lynch

guy about doing this -- I'm in my late-40s -- but I overrode him last year for my wife and me. I've had big gains, and I can move the money around without tax consequences," writes

David Hoerl

.

"In fact, why is it that most companies give you so little choice in your 401(k)? My wife and I can't get anything more aggressive than

(FMAGX) - Get Report

Magellan" -- Fidelity's successful but very mainstream, mutual fund.

Elizabeth Stiers

went as far as moving her IRA just to invest it the way she wants.

"My IRA account sat at Merrill Lynch for years with about eight different stocks in it. Last summer I decided to play IPOs in my IRA account," Stiers writes. "In September I transferred the account from Merrill to

E*Trade

after my broker argued with me about buying Internet Capital and

Red Hat

(RHAT)

IPOs because they are so volatile. Now I own a combination of about 60 stocks, mostly high-tech. ... If the market holds, I plan to retire in seven years at 50 and continue to watch this account grow until I start withdrawing at 59 1/2."

Stiers's strategy illustrates a key reason for being more aggressive in your tax-deferred retirement account: If your investments within the account appreciate dramatically, you can indeed sell them without incurring any capital gains taxes.

But as with anything, there are risks and disadvantages to keep in mind.

"I see your point about being more aggressive in an IRA. However, I think it should be noted that if your aggressive investment doesn't work out and you have to sell at a loss, your chance to let that amount compound tax-deferred is gone forever," says

Patrick Watson

. "You can't add more money to your IRA to make it up."

He's right: You can't put extra money in your IRA to compensate for any loss. (However, you can keep making your annual $2,000 contribution.)

You also can't harvest a loss in your IRA to offset any taxable gains you've realized in your non-retirement accounts.

How many people are really thinking about losses these days?

Send your questions and comments to

deardagen@thestreet.com, and please include your full name.

Dear Dagen aims to provide general fund information. Under no circumstances does the information in this column represent a recommendation to buy or sell funds or other securities.