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Small investors are fucked from the start

This has always been the case. The stock market, corporate bonds, land trusts, and any other investment made by a person who isn't an expert in the field is just putting their money into a big black box, crossing their fingers, and hoping more money comes out.

If you've got $100k to invest, go buy a car wash. It's a much safer bet than randomly sticking your money into the mystical black box.

If you've got $10k to invest, find 10 friends and buy a McDonald's. Yeah, it might be buying a job, but those things print money, and if you lose money, you will have lost it betting on yourself.

These are far more sensible solutions to manage your extra cash than throwing it into a mutual fund or a 401k or a savings account managed by someone you don't know in a way that you don't understand. You're just setting yourself up to be victimized when you thought you were 5 years away from retirement.

Non-optimal returns are very different than being screwed over by scammers. One of the reasons that the US has such strong capital markets is that common investments are rarely out-and-out frauds. Whether that's due to the nobility of bankers or our relatively strong regulations is left as an exercise to the reader.

I think you vastly underestimate the costs of real businesses. Looking at BizBen.com, maybe 3% of car washes for sale are under $100k. The average McDonald's grosses $2.2m/yr and is reported to have profits in the 7% range, which would be ~$150k/yr. There's no way you can buy $150k/year in income for $100k.

You also don't account for the opportunity cost of the time and energy, or the increased risk. If I'm taking my investment money and buying myself a job, then if my investment fails my job is gone too. For a lot of people it's better just to put the money in a (tax-advantaged) 401k and spend their energy on what they're actually good at, which is probably not the evaluation and operation of small businesses.

Investing is simply choosing who you want to get to use your money to try to grow.

If you're focussed on returns, unless you have significant control over the companies you invest in, investing anything but a low-overhead tracker of a well-known index is not investing but just plain betting.

If you're not just focused on returns though, you should invest 'on principal' in what you believe in.

I always believed that small companies would in general do/be better, therefore I would've invested in small-caps. Some people want to fund a more eco-friendly world and invest in CleanTech funds. Now if you believe want a world with more startups, you can invest in that.

But yes, having a managed 401k is giving your money to a bunch of dispassionate bureaucrats which in general is not that smart of move.

[EDIT: I didn't know that 401k has tax benefits which might offset the overhead of the bureaucrats.]

How on Earth can you speak about the intelligence of contributing to a 401k if you didn't know their tax benefits?

Not everyone on Earth is an American :)

As wpietri correctly assumed, I thought that a 401k was by definition a managed fund and my comment was directed at managed funds in general.

Also, after switching employers, you can roll your 401k over to an IRA and invest in whatever you want.

It wasn't my comment, but I suspect his focus was more on the managed funds that most people use in 401ks rather than the 401k account type itself.

That's a reasonable suspicion. Warren Buffett's involved in a million-dollar bet on the same topic: http://longbets.org/362/

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