Is There a Limit on the Number of Times You Can Sell or Buy Stock in a 401(K)?
As a participant in a 401k plan, you cannot buy and sell individual stocks. Because it is strictly for retirement, 401k plans prohibit individual stock trading by employees to prevent huge losses. Professional portfolio managers are responsible for overseeing the performance your 401k based on investment choices that you make. However, you can diversify your 401k contributions as many times as you like.
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Starting A 401k Plan
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If your job offers an employer-matched 401k plan, take advantage of it. A 401k is a great way to save for your retirement. Some plans allow you to make contributions on a before or after-tax basis. You can contribute up to $16,500 to your 401k compared to $5,000 in an Individual Retirement Account (IRA). There is usually an employee vesting period of a few years as defined by your employer.
Asset Allocation
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Your employer sets up a 401k plan. However, a third-party administrator (TPA) manages the 401k plan. The TPA offers plan participants a choice of mutual funds. You can allocate your 401k contributions across a number funds offer through your employer's plan. There is no limit to how many times you can switch mutual funds or how often you reallocate your contributions. For instance, you can split your contribution in a conservative bond fund with a high-growth mutual fund that invests in technology companies. However, frequent switching leads to transactions fees.
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Diversification
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How you allocate your 401k contributions is up to you. You can split your contribution equally in a bond and stock fund. However, this is may not enough. For example, a more diversified portfolio can be comprised of 20 percent U.S. stocks, 20 percent bonds, 20 percent emerging markets fund, 20 percent in European stocks, and 20 percent in a money market fund. Your choices may be limited though. Some plans offer a variety of mutual funds while other 401k plans offer a few basic mutual funds.
Considerations
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A plan administrator does not provide a breakdown of which companies are included in its mutual funds. However, if you do some research you can sift out quality companies that may comprise a mutual fund portfolio. For example, if your 401k plan offers a High Growth Fund, you can research fast-growing companies, and make place a trade through your brokerage account. Investing in one stock as opposed to a mutual fund exposes you to greater risk. Also, there is no guarantee that the company is included in your 401k plan's mutual fund.
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References
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Comments
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Let's assume the actual question is "Is there a limit on the number of times you can sell or buy a mutal fund in a 401(k)". The article sidesteps the actual question.
