No. Most individuals are ill-suited to engage in investment management. Investing is time-consuming and specialized. Many unsophisticated investors make palpably unwise decisions. For example, an employer purchases a "guaranteed" investment contract issued by an insurance company. The contract "locks in" the relationship for an extended period of time by reason of various penalties if the contract is terminated "prematurely," e.g., an adverse market value adjustment equals a premature termination charge. The termination penalties are typically not disclosed at the outset of the relationship to the detriment of both the employer and the plan participants who become disenchanted with the "loads," market value performance, or deficient service. While there are worse fates than paying a little more than others pay for good investments, abuse and outright fraud in the sale of investment products pose endemic problems that give rise to the state and Federal securities laws.
One attribute of the modern American private pension system is that most investment decisions have been removed from the hands of ordinary workers and made the responsibility of investment professionals. Although the evidence suggests that the professionals may not be very good at outsmarting the broad market averages, which is to say that they may not be very good at outsmarting each other, the professionals seldom fall victim to the obvious blunders such as load funds and boiler room fraud scams.
The evidence indicates that many workers tend to make unwise use even of the little discretion among investments that they are commonly allowed in defined contribution plans. Many workers tend to be excessively risk-adverse by the standards of investment professionals, clumping themselves too conservatively on the risk/return curve, with too little exposure to equities and too much investment in short-term fixed-income investments. Investing in this way can significantly reduce cumulative investment returns across the decades, and consequently, it can impair the levels of retirement savings.
