This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
What could be better than talking about Dow 10,000 with CBS Evening News pros Katie Couric and Anthony Mason? Answer: NOTHING!
In prepping for the segment, it was clear that some recent trends reinforce an old truism of investing: people often chase performance. Of course it doesn't make sense, but somehow it feels more comfortable to buy after markets have already gone up.
The clearest case of chasing performance came from the Hewitt Associates 401(k) index, which found that in September, 401 (k) participants moved $138 million to stocks from bonds and 401 (k) investors have steadily increased their average stock allocations to 57.2% as markets have improved.
Yet with all of the hoopla, I kept singing one of my favorite Grateful Dead lyrics: "what a long strange trip it's been..." The first time we broke through 10,000 on the upside was March 29, 1999. A decade later and we're back where we started!
It's not just about one bad year (on average, 401 (k) participants took a 24% hit in 2008.) Rather, lots of retirement savers have just experienced the US version of a "lost decade," at least in nominal terms. This fact has some, including our Editor-in-Chief Eric Schurenberg, declaring that the 401 (k) has failed.
It's important to note that 401(k)s were originally meant to supplement Social Security and pensions, not replace them. That's why experts say that we need to borrow some of the best parts of pensions and apply them to improve the 401(k) plans, including:
•Adoption of strict rules/guidance about investment types and risk
•Make available ways to guarantee a lifetime income stream
•Ensure participants save enough
I've said that 401(k) reform is a long way off and until we get there, financial literacy in the workplace should be mandatory - just like the fire safety precautions that are required of all employees.
More on MoneyWatch:
• It's Time to Replace the 401(k)
• Trust Hedge Funds? Study Says No Way
• Inside Secrets: How Insurance Agents Get You to Buy
• America's New Frugality: Oh Really?
• Fraud Alert: Million-Plus Fake Coins
• 29 Fees We Hate Most