I'd heard the same logic applied to Bush's plan to privatize social security, namely that it'd be a horrible idea because it ultimately would just give Wall Street incentive to skim money off the top, and puts the onus on Joe Blow to properly invest that money (which is *exactly* what pensions/social security was to solve). If you look at the stats, over 80% of actively managed funds fail to beat the S&P 500. A big portion of that is the fees involved are often 1% or higher of the the value of the funds (not just off the profits). That has a huge impact on the returns you'll make in the long run.
So, it seems obvious to me that when investing, you should invest in the index funds (perhaps S&P 500, maybe a mid or small-cap fund, a european/asian fund (to diversify outside of the U.S. market)). Do you really think you're going to do to better than people whose job it is to invest? And given the fact that 8/10 of them cannot reliably beat the S&P 500...
And you can always find short-term winners. I know people who are gung-ho on AAPL because it's done great things for the past couple of years, and that's great. But like others who I know who are still heavy into INTC and MSFT (which have essentially been flat for 10 years), all quick risers come to an end. The regression toward the mean is really strong.
Anyway, that's a long intro to the same analysis of 401ks done here:
Joe Ponzio's F Wall Street
And he agrees with me, invest in index funds with low overhead.