Assets in 401k Accounts .
"People should have control over their
own retirement funds." This simple idea should get
vigorous nods from anyone who believes in individual autonomy
and personal responsibility.

Unfortunately, no idea remains simple once it enters the
political arena. The current legislative debate about Social
Security -- and how to fund it -- is neither simple nor clear.
Still, the serious push to put the "control over their
own retirement" idea into action was on the agenda in
the 2000 presidential election, courtesy of the 1990s bull
market; in turn it's easy to understand why the idea vanished
from that agenda in 2001-2002, especially when you see this
chart from the Wall Street Journal.

Now the issue is back, and with even more momentum than it
had four years ago -- and once more, the visible rise in 401(k)
assets in 2003 explains why. The chart accompanied an article
that explained how common it is for shareholders to "mismanage"
their 401(k) accounts, via mistakes that range from the understandable
to the inexplicable.

Now, the Journal article didn't take a position on
the political question, and I won't either; I will comment
on the far more relevant question for an individual investor,
namely what the return of this issue says about current state
of market psychology in general. The Journal piece
has a slight hint of "be careful what you ask for,"
though even that doesn't get at the true danger.

That danger can be summed up with two words, namely "performance chasing."
This happens in every financial market, but is most visible
in stocks and stock funds. For example: At the end of the
1990s, many investors figured they had gotten wise to the
benefits of "index funds," which by then looked
like an easy way to get the double-digit annual return that
averages like the S&P 500 had earned for years.

They got double-digit all right. The massive ($79 billion) Vanguard 500 Index
Fund, for example, had a 10.8 annual loss in the
three years from 2000-2002.

Some think a return to the 1990s is possible by moving some
of the money now going to Social Security into stocks; what's
much more likely is that this represents a last gasp of the
old bullish optimism, and a denial of the reality of the past
five years.

The politics will be interesting to watch, at least as long
as it lasts; just remember that the duration of the political
debate is up to the trend in the stock market, not
the other way around.

Robert Folsom is a financialwriter and editor for ElliottWave International, the largest independent provider of technical analysis in the world. To read more from Mr. Folsom,and to discover the value of unbiased market analysis, readMr. Folsom's MarketWatch column on elliottwave.com.

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