October 6, 2017, 4:00 pm EST

As we head into the weekend, today I want to talk a bit about the 401k. 

​I’m looking today at a relatives 401k offering.  Nothing has made Wall Street richer than the advent of the 401k. They get a constant monthly stream of fresh capital to skim fees and commissions from, and you get all of the market risk.

​For the average person, selecting from the “options” in their 401k plan is a practice of picking the highest number. No surprise, the fund providers know that, and play plenty of games to show you the best numbers possible.

​Here’s an example:  As I’m looking through the limited choices in this particular 401k plan provider, there is a common theme in the “inception date” of most of the company’s mutual fund offerings.  They tend to have track records that start in 2002 at or near the bottom of the internet bubble-induced stock market crash, OR they start in 2009 AFTER the 50% collapse in stocks, OR they start in late 1987 AFTER the crash.

Clearly the long-term returns will look quite a bit better when you’re starting from a bottom, after a crash. And clearly returns will look better without hanging a negative 30%-50% in 2008 and then another negative 30%-40% in the early 2000s.

Maybe they are newer, better strategies and had the good fortune of launching at the right time?

More often, they close them down and reopen them under a new, tweaked name.  Add to that, they are constantly launching and running hundreds, if not thousands of funds, so that at any given time they can cherry pick the best performers over a certain period, to put them in front of a captive audience.

Bottom line: Big mutual fund giants are mass asset gatherers feeding on the passive 401k flow of capital, rather than astute investment managers. And the long term returns, after fees, prove it. People are locking their money up for a very long time, and getting a fraction of the market return.

When Congress invented the 401k in the 70s to transfer risk and obligations from the employer (traditional defined benefit pensions) to the employee (defined contributions), they didn’t do you any favors.