The Problem With The 401k
For me at least, the biggest problem I have with my 401K plan is the lack of investing options. For example, there is no clear way to own commodities such as gold. There is no clear way to short the market– or to own any sort of downside protection (you tell me a 401K plan can’t have a fund with some downside out of the money put options?). And, at least in the case of my 401K, there is no cash option– that is, I can have my money in a money market account, but not in cash. And I believe that this is for the enrichment of the 401k manager, and certainly not for the benefit of the employee.
In March 2008 when the market was telegraphing ahead that the way forward was down, my only option was to move my money into a money market. I would have preferred cash– and by October the Feds had to step in to prop up Money Market Mutual Funds, my worst fears were nearly realized.
It’s not as if I work for a small shop or for one that generally doesn’t care. I work for a Fortune 500 company who was in the top 20 of Fortune’s Best Places To Work in 2008, and our 401K is administered through Fidelity. Whatever someone at my company thinks of their specific situation/ job/ manager, I think most if not all would agree that our company at the corporate level tries to do alot for its employees. And yet, in this best-of-all-possible circumstances, I find my 401k coming up short. I can only imagine what it is like for others.
And, even the “lifestage” investment strategies that have become popular with 401K plans in the past few years do little to compensate for “black swan” market events where every asset class precipitously falls–like the last 12 months. What’s more, a precipitous fall has occurred at least once a generation, so it must be anticipated by the 401K plan rather than ignored.
Want to see greater stewardship and ownership of the 401K for the retirement vehicle it is supposed to be? Give people additional methods to manage it that amount to more than “dump it in the market and pray it goes up forever.” And tell them simply that this is part of their job to make it happen. I think you’d be surprised.
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