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Chapter 1. Other People's Problems > Do-It-Yourself Investing

Do-It-Yourself Investing

There is a worldwide trend toward investment autonomy. That is, people are being asked to manage their own money. Consider the trends over the past couple of decades in the pension arena. Employee retirement plans have gone from predominately managed by professionals in the defined benefit plans to predominately managed by the employee in the defined contribution plan—known as the 401(k) plan. In the late 1990s and early 2000s, serious debates occurred over the possibility of allowing Americans to manage their own social security investment money. Social security reform may yet include some type of self-directed account. Another example is the incredible amount of wealth transferred in the mid to late 1990s from full-advice brokerage firms to no-advice online brokerage firms. Investors have to make their own decisions.

In 1990, employees frequently had few choices in their 401(k) retirement plan. Options commonly were only a money market fund, a bond fund, a stock fund, and the company's own stock. Now participants are faced with allocating retirement assets over an average 11 different choices. Some plans have hundreds of mutual funds to pick from, or even the ability to buy individual stocks. Recent social security reform in Sweden will allow workers to direct 2.5% of their salary to individual accounts where they will have 450 funds to choose from. It is not yet clear how the social security reform in the United States will be accomplished, if at all. But self-directed investment of a portion of social security money is a possibility.


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