"Should there be any restrictions on permissablke investments? Should only index funds be allowed? Only approved mutual funds, actively managed or index? Individual stocks and bonds? Real estate? Collectibles? My brother-in-laws dry cleaning store?"
There should be some restrictions, but I don't know that I'm qualified to say how they should be imposed or implemented.
I have always believed that in a mandatory system of fully funded private accounts, established with each worker's payroll taxes, that there should be a minimum safety net funded by general federal taxes. This would be a sort of insurance (risk spreading) protection against the failure of an individual's account. It would also provide a societal protection against a market-wide failure.
The problem with having a minimum safety net would be the potential that some persons might treat their private account as money to gamble with if they could rely on the minimum safety net even if they lost it all on risky investments. The phrase I usually use is "Mars colonization projects." This would be a reason for imposing restrictions on investments. It would seem that there is a correlation with the level of the minimum safety net and the amount of investment restriction required. If the minimum safety net is set very low, people might not undertake risky investments as readily as they might if the minimum were set at a higher, more comfortable level.
Perhaps there could be a method of rating investments like Moody's (?) rates bonds. Each year (or until a cumulative total was reached) an individual would have to invest so many dollars in the safer rated investments before they could invest in more risky rated investments - or perhaps even in one's own sole proprietorship venture. (This is brainstorming.)
