When hedge funds last year implemented gating in an attempt to avoid full-bore fire sale mode, not too many folks were up in arms because this mostly affected institutions and the super-rich. Now it is happening to mom and pop.
I think a story that is going to be written a lot over the next year is that investing in a 401(k) plan is a bad idea. This is not my opinion but I can see how one can get there. The benefits of a 401(k) are well-know. You contribute pre-tax dollars, the annual limit is high relative to IRAs, the gains grow tax-free, sometimes your employers match all or a portion of your contribution.
The negatives, other than the fact that some people as noted above cannot readily access their money?
- Plan participants get almost no help with their allocations, and most people know little about investing
- Tons of people allocate poorly and novice investors are often hurt the most by bear markets
- Investors have actually lost money on some of the contributions they have made in the last two decades, over long investment periods
- The fees paid, as 60 Minutes pointed out last month, to the fund managers and the plan sponsors/admins, are considerable
If no big insurance compny fails (other than AIG which no longer counts), look for the annuity industry to emerge as a real rival.