I cringed when I read this piece in the Financial Times. It looks like some 401(k) plans are getting ready to allow workers to invest in ETFs. ETFs have too primary benefits: They're easier to trade than traditional mutual funds and the closed-end nature of the funds eliminates shareholder redemptions and therefore a lot of the capital gains taxes. In a tax-deferred 401(k), these are not important attributes: You won't be taxes for a long time and you won't be trading actively either.
Then there's the confusion element: Most workers are confused enough by their retirement plans as it is, and throwing ETFs in there probably won't help. According to a piece in the Wall Street Journal from earlier this week, ETFs are not any better than traditional mutual funds: In a tax-deferred account, they might even be worse.
But how many workers are really going to research this? We need to make retirement accounts more simple, not more complicated. And adding ETFs is not the way to do that.
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