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Open Letter to TMF about 401(k)s

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By jackcrow
March 9, 2006

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This is an open letter to the founders and to TMF community.

As investors who seek to better understand investing with a desire to have more and better control over their long-term futures, we need to start a new movement. A movement much like the one that our founders, this community and like boards (many which have faded away), started over a decade ago. We've made huge strides over that period that have enabled investors to stop fearing ownership of individual stocks and have moved these investors away from the forces that dominate the sell side of investment houses. We no longer have to be at the mercy of the "experts" and their "recommendations". We no longer have to buy what the broker is selling because we can better determine for ourselves if it's in our best interest or the investment house's. TMF in both the form of the founders and the community has played a significant role in that process and continues to do so.

One of the TMF mantras for a long time is that if you can't or don't want to invest in individual stocks but still want to participate in the equity markets then the vehicle of choice should be a low cost index funds (now we have ETFs as well). The argument is that if you don't think you can or don't want to put in the effort to beat the markets average, it's ok to enjoy the market average. The best way to do this is to invest in index funds, because if nothing else, the management fees of managed funds eat into the returns, producing results that under-perform.

The community has long argued against return chasing and thus hoping from managed fund to managed fund, increasing expenses and often being a day late and thus further harming our long-term returns. DCA into an index fund or funds of your choice, sit back and enjoy your long term, sleep well at night, investment choice.

With this in mind, many good hard working Fools are denied the ability to do this in the place where they save and invest a significant portion of their long term investment money: their 401(k) plans. 401(k) plans are still dominated by the Wise and not by the Fools. Plan choices are often limited in both spectrum and to managed funds; managed funds chosen by the Wise. The same Wise who we cannot depend on to have our best interests at heart.

We continue to educate and amuse here at TMF while many good Fools leave this bastion of Foolishness only to be frustrated by the Wise that control more than they do their retirement futures. These frustrated Fools are often one small voice within their employment situation. They are often far removed from the folks in H.R., the 'C' officers and board members that make these decisions. They have limited input and if they get too loud, they run the risk of being labeled a complainer. After all, the company provides X amount of matching funds . . . yada, yada.

Our H.R. offices are often chock-full of good people who truly care about the folks and the company they serve but their forte is not personal finance. They have many moving parts to manage above and beyond the retirement program. The same is often true for the C officers in these companies and the boards. With limited time and resources they willingly depend on the Wise to assist them in making good choices for employees of the company.

We here at TMF know that it doesn't take a great deal of work or time to broaden our horizons. We know that taking significant control over our futures is possible and doesn't have to be terrifying or complicated. Index funds are simple to explain and understand. The argument for index funds is good one because it is elegant; Occum would be proud.

I'm asking for the leadership of this community to take up the task of the next logical step in empowering the individual investor. I'm asking the same of the entire TMF community. The next logical step is to move 401(k) plans and their like to greater flexibility and more importantly to give the individual investor the opportunity to access low cost index funds within their plans.

I wish I had a blue print to offer but I trust that the entire TMF community from top to bottom can create one. We cannot expect overnight success; we didn't get it the first time around. It's been a long journey from when the founders created this community to the amount of empowerment we enjoy today. But if we don't identify the issue we will continue to ignore the elephant in the room.

Sincerely,

jackcrow
(A Registered Fool Since December 26, 2001)


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