“Freedom from Market Swings” ( JofA, May02, page 49) was both enjoyable and thought provoking. While reflecting upon the article, I formulated two distinct impressions of the information presented.
First, it has been argued that recent valuations might not have been realistic or sustainable over the long run based, in part, on certain underlying financial characteristics.
Second, investors in every tax bracket effectively are forced to employ a buy-and-hold strategy through their employer-sponsored 401(k) plans. These plans generally do not allow the participants to “look beyond stocks and diversify with alternative investments.”
A lot of attention has been given to the 401(k) plans, but there is more work to be done as corporate America moves away from defined benefit programs toward defined contribution plans. Over time these programs will need to offer the flexibility of an unsheltered and individually managed account if they are to successfully fulfill society’s intentions and expectations. For example, investors require diversity not only within asset classes but also among investment alternatives if they are to reach Markowitz’s efficient frontiers. Alternatives create the need for sound advice and education, both of which benefit CPAs, the profession and markets by offering choice and transparency.
Samuel T. Broomer, CPA
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