History

• Typically 401k and other contribution-based pension plans offered participants a limited number of mutual funds or fixed return accounts for investment. In the late 1990s employer sponsored plans started to offer broader investment options through self-directed brokerage accounts.
  
  

Function

• If an employer pension plan has a self-directed options, participants invest in a wide range of stocks, bonds or precious metals.
  
  

Potential

• Experienced investors can use the self-directed option to pick investments that may perform significantly better than the mutual funds offered in the plan.
  
  

Considerations

• Self-directed brokerage accounts will have higher fees and commissions than the typical 401k plan. Plan participants become more responsible for the performance of their invested retirement assets.
  
  

Warning

• According to the Financial Planning Association, self-directed plan participants can significantly increase the risk in their retirement plans by focusing the assets on only a few stocks.