When plan sponsors offer a brokerage window in their 401(k) plan they must monitor how it is invested. Remember, as a fiduciary you are responsibile for the plan participant AND their beneficiaries. Most who choose the brokerage window believe they can beat the market. This is futile.

Other things include minimizing transaction costs by buying no-load funds and ETFs, which generally have lower expense ratios than mutual funds. And minimize trading. Numerous studies document the tendency of people to exaggerate their own investing competence, and to overtrade as a result. (Men tend to trade more than women, and to suffer more as a consequence). A broker would invite trouble for “churning” your account—that is, trading excessively to rack up commissions. Most people tend to be their own worst broker.”It’s human nature that they have a lot of emotional overlay,” says Kasten, “so they will tend to be buying at market tops and selling at market bottoms.”

Individual investors are ill prepared to manage their own investments. Most allow their emotions to guide their investments decisions with very poor results. Many are trying to substitute a disciplined savings approach with stock picking. In the long term most will lose.

Please comment or call to discuss how this affects you and your company 401(k) plan.