Thursday, November 24, 2011

Answer: Father of the 401(k)

Question: Who is Ted Benna?

Sorry for the answer/question format. I was watching the TV game show "Jeopardy!" before writing this post.

A good friend of mine sent me a link to an interview with Ted Benna. I had not heard of him, but apparently he was the first person to get a 401(k) retirement savings plan approved by the IRS some 30 years ago. In fact, the reason a 401(k) is called a "401(k)" is because that is the IRS tax code section that created these retirement accounts.

The interesting thing about the interview, is that Mr. Benna does not seem to like how the 401(k) has evolved over time.
Benna believes that 401(k) plans have become too complicated with too many investment options. I completely agree with Benna, which is why I wrote my first book, "The 401(k) Cookbook," in an effort to make 401(k) investing as simple as baking brownies.

In the beginning, 401(k) plans had too few options, often just two.  As the mutual fund industry embraced these plans we saw an explosion in plan options.  Now, the typical 401(k) plan has 20 or more investment options. This is definitely too many in my opinion.  The greatest 401(k) plan on the planet, the Thrift Savings Plan (the U.S. Federal Government's version of a 401(k) plan), has just 10 options. Honestly, I believe even that is 5 more than needed.  Which is why I also wrote "The Federal TSP Cookbook" in an effort to simplify retirement investing for federal employees.

I use no more than 8 investment ingredients in my recommended investment recipes:

  1. Large Company US Stocks
  2. Mid-Sized Company US Stocks
  3. Small Company US Stocks
  4. Foreign Stocks
  5. Short-term Bonds
  6. Intermediate-term Bonds
  7. Long-term Bonds
  8. Inflation-protected Bonds
Many of my recipes for younger employees include 5 or fewer ingredients. My advice to investors is to keep your portfolio simple. Use no more than those 8 options listed above and use index funds everywhere possible.  If you want some guidance in 100 pages or less, check out one of my books at 

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