By Richard SchmittNEW YORK ( TheStreet) -- "The times, they are a-changin'," Bob Dylan once warbled. Although unlikely, Dylan could very well have been referring to changes in market conditions that should prompt a new look at traditional retirement savings investment strategies. To savvy investors tired of languishing returns of late, perhaps his lyrics could serve to underscore the market's message: move over, buy-and-hold investors; there is a new sheriff in town, and he is 401(k) daytrading. Conventional wisdom once suggested holding stocks for the long term. After all, the broad stock market rewarded buy-and-hold investors with generous returns in the range of 11% per year on average from 1926 through 2000. It seems investors got used to the powerful engine of economic growth driving outsized market returns over the long term.
Left on their own with this increased personal responsibility of managing retirement savings to last a lifetime or two in the midst of a changing investment climate, individual investors need a new way to take advantage of daily market volatility. Now enters a simple, but carefully crafted, approach that relies on daily transfers between cash and stock funds to convert the market's ups and downs into lasting gains within retirement savings. Much safer than it sounds, 401(k) daytrading essentially amounts to buying low and selling high within retirement savings accounts, where trades do not trigger immediate income taxes or direct trading costs. With retirement savings account fund options typically valued once a day at the market close, 401(k) day trading calls for the execution of an incremental fund exchange between cash and stock market index funds each day just prior to the market close. Each daily fund exchange depends on the direction and amount of the stock market's change for the day. Taking only minutes a day, each incremental fund exchange amounts to either setting up a gain through an exchange from cash to stock when the market is about to close lower or capturing a gain through an exchange from stock to cash when the market is about to close higher. Done the right way to satisfy funds' frequent trading rules, 401(k) daytrading makes something out of a market that has offered nothing more than volatility over the past 13 years. In fact, over the 10 years ended March 31, a 401(k) daytrading strategy netted a return of 42.5%, almost 20% better than holding the S&P 500 (excluding dividends). That being the case, 401(k) daytrading adapts well to "the times, they are a-changin'." This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.