Brokerage Accounts in Your 401k...What Do You Do?

For most employees, the selection of mutual funds in your 401k fits the need - serving to offer simplicity of choice as well as diversification.  Both are valid goals in the structuring of any defined contribution plan.

However, regardless of the size of your company, some employees (is it 1%?  5%?  15%?) want an open source 401K, my term for the option on your plan that allows them to open a brokerage account and trade almost any active security as a part of your 401K.  Read more about this type of option here (Note - the most actively marketed benefit of this to HR Pros is that it will meet their fiduciary liability to a greater degree, not a terrible idea..)

To make sure you are armed with the facts on active trading if your plan offers this option, take a look at the recent set of articles by Henry Blodget on Slate.com.  In these articles, Blodget takes a critical stand towards securities marketers like Jim Cramer (pictured at right), reinforcing the view by folks like Bogle from Vanguard that the smart individual investor buys a diversified set of index funds and holds for the long term.   His main point is that very few professionals beat the market while focusing solely on it full time, so how will the part-timer fare?  Additionally, he cites the numbers for the professional fund managers are worse than even the poor numbers advertised once the various costs are factored in...

Great read and should arm you with the facts whether you decide to participate in a managed account option or not.  Also, note of disclaimer - Blodget is one of the most famous "flameouts" of the dot.com era....  To me, the history behind Blodget offers more credibility to his current ideas...