In a recent post we discussed the 401(k), a bit about its history and some of the challenges individual investors face from their participation in these plans.
It's also worth mentioning that the introduction of the 401(k) plan has created other problems for the industry as a whole. When a large number of individuals invest in the same stocks [due to the limited investment options within 401(k) plans], it creates an abnormal demand for those stocks and artificially inflates their prices.
Industry pundits are also pointing out that the flow of vast sums of money into the market tends to make money managers complacent and less attentive to the needs of investors.
In a recent article in Forbes, John Wasik explains the impact. "Wall Street, needless to say, loves the 401(k) model, and is lustily funding the demise of the defined-benefit world at every turn through think tanks, white papers, campaign funding and influence on the 'free market' school of economics.
"The more society moves into a 401(k) world, the more fees corporations can charge to an ever-greater number of people. The more money under management, the more money they make on a straight percentage. It doesn’t matter if they had employed actual skill to make your money grow. In most cases, they did little or nothing and they still get paid when you lose money."
Source: The 401(k) World: a Deeper Look into Tom Friedman's nightmare.
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