25 Years of Mediocrity

October 24, 2007

The 401(k) market is a national embarrassment. How? I'm sometimes asked. Let me count the ways...

I'm out in lovely Portland, Oregon for Invest n Retire's annual forum. In addition to presenting on the bewildering array of new exchange-traded offerings, I signed on for a debate with ICI (the mutual fund's trade organization: www.ici.org) chief economist Brian Reid.

Brian is a great guy, and he's certainly good with numbers and statistics, but he is in a simply untenable position trying to defend the 401(k) system, which was really an accidental creation (the section 401(k) loophole we can call it) anyway.

It's got all the trademarks of an anti-capitalist, inefficient financial services industry boondoggle. So for Brian to try to attempt righteousness and effectively call more open-platform or aggregated plans socialism is ludicrous on its face. What we have is a system that encourages kickbacks, a captive system that provides investors with worse investing options and will cost investors billions of dollars in fees and lax returns whether or not we manage to reform the system by mandating some decent options.

I'm not sure what the solution is. Privatizing social security doesn't do it for me, that's for sure. I think the mass move toward DC plans from DB plans has done a tremendous disservice toward most retirees. The fact of the matter is that 95% of investors are CLUELESS about investing, and we need to set up a system that both encourages savings and provides good defaults.

For my own retirement, what I wouldn't GIVE for a radically expanded IRA system and an abolished 401(k) system. For the masses, something visionary needs to be built, that will get people invested without forcing them to actually make decisions on what they invest in to the greatest degree possible. Because the more most people do that, the worse their returns will be. I'm convinced of that. When I get into a plane, they don't draw lots to see who's going to fly the thing. There's some guy who does that. He's called a pilot. And he gets me safely where I'm going every time.

In a country with such great minds and innovators, we could do so much better.

By the way, I'm with Matt on the 3-6 months to an active ETF launch, or would be anyway, if there weren't already about 150 active ETFs on the market.

And re: the Red Sox, painful though it is, I will absolutely be cheering for them. There's always next year for our beloved Cleveland Indians.

Great interview on the home page with Gus Fleites today...

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