Tell me again why this is good?
If you're buying and selling stocks, you're selling stocks you bought last year at a higher price, yeah, that makes you some money. If on the other hand you're trying to "buy and hold", or trying to make income by holding on to these stocks, you're paying 26% more for 10% less returns. But short term trading isn't supposed to be how stocks are valued. Price isn't supposed to be based on "bigger fool theory" ("I'm a fool to buy at this price, but I'll find a bigger fool to sell it to tomorrow); that's bubble talk. Prices are supposed to be based on financial performance of the company.
It's good for bankers, brokers and day traders, not ordinary folks trying to save for retirement. 401k rules forbid the kind of trading these folks do.
About "being in the market", consider:
ReplyDeleteIn basing value strictly on dividends, you ignore the effects of inflation, growth potential, and earnings potential. A large fraction of recent market "growth" has been related to funds injection via Quantitative Easing. And, for many companies, dividends are undesirable because they get taxed twice -- both at the corporate and at the personal income levels.
Further, "being in the market" can also involve "being in mutual funds", which is the way I play it. I figure I'm not smart enough to play individual stocks, but I can certainly find funds with good fund managers, and work the market that way.
Note that, while 401K rules prohibit many kinds of trading, IRA rules are pretty much free-form. Further, there are many kinds of funds available for IRA's (e.g., sector funds) which aren't available to 401K's.