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  • Roth IRA trade stocks

    Ok, I'm I long time reader of WCI and several other personal finance blogs with similar investment philosophies, and for the most part I'm a disciple.  I've also come here to tell you I've developed a problem: I like to play around with individual stocks.  Save me the "face punches," I know I cant beat wall street, you cant time the market, etc etc, but I find it kinda fun to research stocks and gamble a bit on smaller companies that may break big (or big companies that are undervalued).

    Now with that off my chest, I'm sure there are others here who scratch the itch too, right?  I've been doing it in a taxable account but thinking about using the Roth space for this purpose.  Anyone else doing this?  Is this a bad idea for some reason I haven't considered?

    I'm aware of the risks, but for perspective, the 5500 I put in my Roth represents less than 5% of my annual savings.

  • #2
    Another MMM reader, I see.

    If you're saving a six-figure sum each year, and want to trade individual stocks, I would think the Roth would be a good place to do so. Trading stocks is usually tax inefficient, so you might as well park 'em and swap 'em in a place where the capital gains and dividends won't be taxed.

     

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    • #3
      While I don't do it and don't advise it, I understand the itch. It's just another form of gambling, and beating the market occasionally feels good (I enjoy a game of Texas Hold'em with my buddies occasionally, so who am I to judge). If you are going to trade stocks, keep it to less than 5% of your portfolio. The tax inefficiency of the practice means it will likely hurt you less if it's in a retirement account.

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      • #4
        In all likelihood you will perform poorly.  If you are ok with poor performance of 5%, then I don't see why you shouldn't do it in a Roth account.  It will save you a ton of headaches later on.

        The hard part is that at some point you will likely have a "good pick".  Not allowing yourself to commit more money to this endeavor when you are riding high will be the challenge.

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        • #5
          Thats a double edge savior as it wont allow him to lose too much when its a bad pick.

           

          Its hard, I sometimes have the same issue. I now try to buy the etfs most closely associated with the stocks/sectors are better deals, but I did buy one individual whipping boy stock in february in addition to the sector etf its from. It was only 2k and thus absolutely meaningless either way. I now recall why I like etfs, its fun to have a play section, but even if it does phenomenal it wont really affect much if you've made it appropriately sized for risk so why bother?

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          • #6
            You might want to use a taxable account so that you harvest your losses.?

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            • #7
              Trading individual stocks can be fun and addicting. I say this as a survivor of the .COM bust.

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              • #8
                Thanks everyone.  Yeah, I think Zaphod hit the nail on the head though.  It can be fun and addictive (just like gambling), but if allocated to a proper proportion of the portfolio, even a fabulous trade/investment barely makes a dent.  We'll see, guess I'll continue for now and when I wear out or lose money I'll revert back to using my Roth space for REITs or bond funds.

                anyone else doing this?

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                • #9




                  Thanks everyone.  Yeah, I think Zaphod hit the nail on the head though.  It can be fun and addictive (just like gambling), but if allocated to a proper proportion of the portfolio, even a fabulous trade/investment barely makes a dent.  We’ll see, guess I’ll continue for now and when I wear out or lose money I’ll revert back to using my Roth space for REITs or bond funds.

                  anyone else doing this?
                  Click to expand...


                  Given that you're more likely to lose than win (gambling terminology intentional), I think you should continue using taxable space for your "habit". A Roth may numb you to the effects. I have so much anecdotal evidence of this from CPA clients getting hosed by "playing the market" over the past 30 years, I could probably write a book.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10







                    Thanks everyone.  Yeah, I think Zaphod hit the nail on the head though.  It can be fun and addictive (just like gambling), but if allocated to a proper proportion of the portfolio, even a fabulous trade/investment barely makes a dent.  We’ll see, guess I’ll continue for now and when I wear out or lose money I’ll revert back to using my Roth space for REITs or bond funds.

                    anyone else doing this?
                    Click to expand…


                    Given that you’re more likely to lose than win (gambling terminology intentional), I think you should continue using taxable space for your “habit”. A Roth may numb you to the effects. I have so much anecdotal evidence of this from CPA clients getting hosed by “playing the market” over the past 30 years, I could probably write a book.
                    Click to expand...


                    You should write a book, Johanna.

                    Picking individual stocks requires you to make many individual decisions that require some research (and time). What to buy, when to buy, how much to buy, when to sell, etc... and you have to constantly re-evaluate these questions for each holding. I think it could get to be rather emotional as well.  A lotta coulda woulda shoulda. So it's not for me.

                    I'll echo what the others have said, and recommend keeping it to a small amount of your portfolio (upt to about 5%). Of course, doing that kind of negates the purpose.  Big wins aren't actually Big. But neither are the losses.

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