Was the 401(k) a Mistake?

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@Hawkwin

The DALBAR study isn’t really about comparing 401k to market performance, it is about comparing individual/personal investing to market performance.

1. The whole purpose of the 401K is to allow individuals to make investment choices themselves rather then have a defined benefit pension fund manager do it for them. And of course, the Financial Services industry knew they could make a bundle by dealing with unschooled individual investors rather than pension fund professionals. We’re now seeing the results of that in the number of folks with painfully small retirement accounts.

2. I agree that 401k investors are “dollar cost averaging over time” if they are making monthly contributions to a retirement account. But you’d have the same performance if you were investing for retirement outside of the 401k account.

3. Absolutely 401k investment returns are reduced by the fees paid by investors. Thus the need to keep those fees at the absolute minimum level.

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@bjurasz

Or why 401k plans are so expensive for a company to offer, let alone contribute to. Why is it so hard for small employers to offer a plan. Why not just let everyone have IRAs, with $25,000 annual limits (or whatever), with the ability for an employer to contribute directly as well. Why does that not make sense?

401ks are designed to maximize the benefit to the Financial Services firms who have made big campaign contributions to Congressmen and Senators. If you were actually trying to help the American people, you’d allow everyone to open up a retirement account in the Thrift Savings Plan (TSP) offered to Federal Gov’t Employees. But like single payer healthcare, doing that is “socialism” because it would deny big Wall Street firms tens of billions of dollars in fees annually. Those tens of billions would be in the worker’s retirement accounts instead.

Having a lot of poor, ignorant people in the Red States voting for this nonsense is part of the business model. American business thrives on racism, ignorance and innumeracy. Once you understand that, it’s possible to do very well as an investor.

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[syke6]

@bjurasz

Or why 401k plans are so expensive for a company to offer, let alone contribute to. Why is it so hard for small employers to offer a plan. Why not just let everyone have IRAs, with $25,000 annual limits (or whatever), with the ability for an employer to contribute directly as well. Why does that not make sense?

I have some limited experience in that I administer a 401k plan–my own. There is some initial paperwork that is confusing, but it isn’t that tough. The payroll provider can do all the deductions and contributions automatically. The only niggle I had was that for some reason I can’t transfer money from my Fidelity business account to my Fidelity 401(k). I have to call them to do it.

Even easier than that is a SEP-IRA but the contribution limits are lower.