Jan 10th, 2009
401(k): Even Great Investment Vehicles Don’t Work With Poor Choices
My fellow personal finance blogger JLP over at All Financial Matters totally hits one out of the park when he advises (capitals his emphasis, not mine) to STICK TO YOUR GUNS, PEOPLE! In it, he points to a Wall Street Journal front page story titled Big Slide in 401(k)s Spurs Calls for Change.
I’ve said it before and I’ll say it again: the 401(k) and its equivalents are one of the best investments since sliced bread. For those who are educated–and honestly, this is not difficult–creating a winning portfolio in a reasonably administered 401(k) is not difficult (one domestic stock index fund, one quality bond fund, one international stock fund, and stir to your liking, based mostly on age and distance from retirement). Yet, lots of people–including some in the article–are worried about the performance of their retirement fund thirty years before they’ll need it!
Come on, people, we’re talking three decades of market performance before it’s time to tap into it. Don’t you think that given the market’s history it just might do better than it did in 2008?
One of the other bits in the article, also cited by JLP, is the possibility of congressional action to their moving toward retirement accounts that are partially funded by the federal government and providing guaranteed but low returns.
Guess what? I can already do something very similar to this with a money market or high interest fund option in my 403(b) already!
Please, don’t do us any non-favors. Leave our 401(k)s [and equivalents, like my 403(b)] alone. Instead, consider more education to help people avoid 401(k) pitfalls, like being overly conservative, taking out 401(k) loans, not participating enough to get an employer match (despite the troubling disappearance of some of those matches), or not participating at all! Other mistakes people make with their 401(k)s is panicking when returns go south and stopping contributions in a downturn or moving everything to cash after a serious decline has hit. Don’t overhaul the whole system into something that’s less useful just because people aren’t making the best choices! Instead, educate them to make better ones!
