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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Raymond Duray who wrote (15215)2/19/2002 1:45:36 PM
From: carranza2  Read Replies (1) of 74559
 
Many are precluded from converting holdings out of equities into money market funds

I'm not sure this is correct. All of the 401(k) plans I've ever heard of have money market features. Shorting stocks is of course wisely prohibited. The vast bulk of investors, even those who consider themselves sophisticated, have no business shorting stocks. Since 401(k) funds are held by mostly unsophisticated investors for retirement purposes, it would be insanity to allow them to short stocks.

If you want an aggressive income producing strategy--well, not that aggressive, but you've got to know what you are doing--you might write covered calls out of an IRA.

And it's certainly not a one way street. The employee essentially gets a tax free raise which he can use for his retirement in plans in which the employer contributes. We contribute up to 75% of an employees contribution.

...artificially pushing too much money at too little real opportunity

Please. Since when is a market supposed to guarantee opportunity? You pay your money, you take your chances. There's risk everywhere. Ideally, a 401(k)'s plans sponsor provides the appropriate (statutorily required) educational function so that an employee makes choices which are wise for his particular circumstance. Most plan sponsors who are aware of their statutory responsibilities hire others to provide this kind of financial advice.

Employers do not typically provide fixed pensions anymore. Most 401(k) plans provide a vehicle for the employee to make his own choices. And it's not a blind choice as the plan sponsor has a fiduciary obligation to provide a modicum of financial education to employees who might otherwise make unwise choices.

I know. I'm my firm's designated 401(k) point man.
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