Read the Privacy Policy to learn how this information is used. Defined-contribution savings plans sometimes permit participants to select their retirement savings investments. Many plans offer investors numerous funds, ideally allowing them to maximize their utility as measured by individual risk and return preferences. The authors survey employees at two organizations to see if they prefer the retirement portfolio asset mix they selected for themselves over other mixes. They find that retirement plan participants do not prefer their own portfolio when presented with various options, indicating that choice alone does not help them make an optimal allocation.
Possibly, participants do not have enough knowledge of investments or of their own preferences to make optimal choices. Defined-contribution savings plans often let participants determine for themselves how to invest their retirement savings. Such plans as k s and b s are popular in the United States, and similar programs are being introduced in other countries.
These plans typically offer several investment funds for the participants to choose among when allocating their savings; one plan in Sweden, at an extreme, allows investors to select from investment options. The authors want to know if these choices allow investors to maximize their utility by creating optimal portfolios for themselves; they also want to know if the portfolios selected maximize the participants' return relative to the risk taken. At UCLA, the authors compiled information about the aggregate investment choices of the plan participants and then projected the range of retirement income from each participant's portfolio, from the portfolio with the average allocation of all plan participants, and from the median portfolio, based on the standard deviation of returns of all plan portfolios.
They asked participants to rate each portfolio using the projected range of retirement income, not knowing which portfolio was their own. Regardless of their personal risk preferences, most participants preferred the median portfolio to their own. Heterogeneity and Portfolio Choice: Theory and Evidence. In this paper, we summarize and add to the evidence on the large and systematic differences in portfolio composition across individuals with varying characteristics, and evaluate some of the theories … Expand.
View 1 excerpt, references background. Individual Decision Making and Investor Welfare. In light of the empirical evidence that investors … Expand. Pessimistic and … Expand. About a third of the assets in large retirement savings plans are invested in company stock, and about a quarter of the "discretionary" contributions are invested in company stock.
From a … Expand. The Center for Research in Security Prices. This paper investigates private interest, public interest, and political-institutional theories of regulatory change to analyze state-level deregulation of bank branching restrictions.
Using a hazard … Expand. Differences of Opinion Make a Horse Race. A model of trading in speculative markets is developed based on differences of opinion among traders. Our purpose is to explain some of the empirical regularities that have been documented concerning … Expand. Risk Aversion Or Myopia? Choices in Repeated Gambles and Retirement Investments. We study how decision makers choose when faced with multiple plays of a gamble or investment.
When evaluating multiple plays of a simple mixed gamble, a chance to win x or lose y, subjects show a … Expand.
The Equity Premium. We estimate the equity premium using dividend and earnings growth rates to measure the expected rate of capital gain. There is a worldwide trend towards increasing investor autonomy. Investors are increasingly able to pick their own portfolios.
How good a job are they doing? We present individuals saving for retirement with information about the distribution of outcomes they could expect from the portfolios they picked and also the median portfolio selected by their peers.
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