For investors who insist on actively managing their savings, a tax-advantaged retirement account can seem like an ideal place to do it.

“From a tax perspective, if you’re going to actively manage and move in and out of different positions, your retirement account, Roth account, or IRA are the best places to do it because you won’t have any tax consequences from buying and selling positions,” Scot Landborg, co-founder, partner, and senior wealth advisor at Sterling Wealth Partners, told Investopedia.

However, while trading in a retirement account can be beneficial from a tax perspective, it could also be detrimental if not done carefully, some retirement and investment experts warn.

Excessive Trading Can Hurt Performance

Investopedia conducted a survey in July 2018 of a representative sample of 122 online readers in the U.S. to find out whether and how they use their retirement account to trade stocks. More than 40% of respondents indicated that they trade in their tax-advantaged accounts.

Out of those respondents who do trade in their retirement accounts, 10% said they trade multiple times per week—which isn't necessarily a good idea, according to Jamie Hopkins, director of retirement research at Carson Group.

“Checking your balances, statements, and investment performance are good behaviors, but excessively trading your investments is not,” said Hopkins in an email to Investopedia.

More than 60% of Investopedia survey respondents who do trade in their accounts say they do so in reaction to “changes in the stock market.” However, this type of trading behavior can be risky, according to Hopkins.

“The biggest risk to retirement security is often yourself," Hopkins said. "When markets decline people tend to panic and sell, fearing a loss. However, by selling, you lock in that loss. Instead, you need to have a plan and emergency funds, to ride out the downturns in the market.”

Keep Your Trading Behavior In Check

Patrick Healey, CFP®, founder, and president of Caliber Financial Partners, noted that many investors suffer from what he refers to as “short-termism.”

Healey explained that investors “want that instant gratification of placing a trade and making a bit of money on it, but [often] tend to make irrational and emotional decisions" that lead to long-term losses.

Healey’s claims are supported by research. According to the 2018 DALBAR Quantitative Analysis of Investor Behavior study, the average equity investor significantly underperformed the market.

In the 10 years ending Jan. 30, 2017, a typical equity investor earned just 4.88% on average per year, while the S&P 500 rose 8.5%.

That difference is due largely to investor behavior. Or, as Hopkins wrote about active retirement savers, “Frequent trading of stocks based on instincts or short-term market trends often results in bad outcomes for the average investor.”

Find a Balance With Rebalancing

Not all trading is bad. Half of Investopedia survey respondents who do trade in their retirement accounts do so in order to rebalance their accounts.

While the subject of some debate, research by Morgan Stanley shows that rebalancing your portfolio, or buying and selling securities to return to your optimal asset allocation, can increase returns over time.

However, rebalancing too frequently may lead to higher costs, and reacting to a falling market may imperil your future retirement goals.

"It's OK to rebalance it occasionally, but if you try to use it to time the market, you may be digging yourself a financial hole that you will never be able to climb out of," said Investopedia Editor-in-Chief Caleb Silver.

Automate Your Investment Decisions

Investors who have performed well in the bull market that followed the financial crisis should be careful to look to the future. “Now is the time to put into writing what you’ll do if the market goes down 10% or 20%,” explained Landborg.

He recommends putting together an Investment Policy Statement, similar to the one that many financial advisors assemble for their clients. The process doesn’t have to be as intricate or as formal as it sounds.

Younger investors can have something as simple as a paragraph that reminds them to “stay the course and not make changes” in the event of a downturn, said Landborg. Older savers who are approaching retirement should "lay out [what they'll do differently] if the market drops,” as well as what the market will have to do in order for them to increase their equities exposure, he added.

Investors who are hesitant to put in the time and effort required to make such a plan should look to professional or automated investing strategies. While financial advisors can help savers put together a holistic financial plan, automated options, such as target-date strategies or robo-advisors offer a solution for investors who are just looking to put their investments on autopilot.

"Automate your plan as much as possible, including your investments," agreed Hopkins. "While it is healthy to look at your account balances and investment performance, realize that you are unlikely to beat the market and your frequent trading, which for a year or two might look good, will eventually come back down." 

Robo-advisors like Betterment offer to take human error out of rebalancing by automating the process while nudging you into better saving behaviors.