- The Washington Times - Monday, May 23, 2005

The vast majority of federal and military 401(k) investors must believe in investing for the long term. That explains why fewer than 200 people out of 3.5 million accounts in the federal Thrift Savings Plan are what are known as active traders.

An active trader is someone who moves money from one or more funds to other funds several times a week. Some probably are making such trades on a daily basis.

Although a lot of people are involved in day trading, most financial planners say the number who actually make money as opposed to losing their shirts could fit into a very small room.

Timing the market is tough to impossible. Even Berkshire-Hathaway’s Warren Buffett says he can’t predict when the market or an individual stock or fund has peaked or bottomed out. The result is that people wind up buying high (chasing returns and buying into a fund when it is going up) and selling low (dumping it when it starts to fall). This is exciting, and it gives one the impression of doing something. But it is not the way to riches.

For example, last week the C Fund of the federal Thrift Savings Plan did well. Like other funds indexed to the Standard & Poors 500 index, it has been down for the year but surged last week. But those who sold it the week before, and then bought back in last week via day trading, may have bought high and sold low.

Even if you were otherwise good or lucky enough to be an effective day trader, you can’t do it.

Tax-free retiree health premiums

When federal postal workers retire, their income drops and their health care premiums go up. That’s because they lose the so-called “premium conversion” tax break. But that would change under legislation cleared last week by a House subcommittee.

The next step is approval of the bill, which would extend the premium conversion tax break to retired feds and future retirees.

The bill is sponsored by Rep. Thomas M. Davis III, Virginia Republican, who heads the committee that controls its fate. Thus its outlook is excellent. Nearly 160 of the 435 House members have signed on to the Davis bill, as have 28 of the 100 senators.

The companion bill has the backing of the all-powerful Sen. Ted Stevens, Alaska Republican, and widespread bipartisan support.

Extending premium conversion to retirees would save the typical former fed, including retired members of Congress and staffers, anywhere from $300 to $500 a year in taxes, but would cost the Treasury money, which is a major problem and roadblock.

However, it also would permit and perhaps encourage more retirees — especially elderly, lower-income former feds — to buy better quality health insurance. That would be a cost savings to the government as it would shift more of the financial burden of their health care to private firms and away from the taxpayers who finance Medicare and also pick up 72 percent of the total premium of retirees and active workers.

Mike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or mcausey@federalnewsradio.com.

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