Articlehybrid2021

Target Date Funds and Portfolio Choice in 401(k) Plans

42 citations0/0 files storedJournal of Pensions Economics and Finance

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Financial Literacy, Pension, Retirement Analysis Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

Abstract Target-date funds in corporate retirement plans grew from $5 billion in 2000 to $734 billion in 2018, partly because federal regulation sanctioned these as default investments in automatic enrollment plans. We show that adopters delegated pension investment decisions to fund managers selected by plan sponsors. Inclusion of these funds in retirement saving menus raised equity shares, boosted bond exposures, curtailed cash/company stock holdings, and reduced idiosyncratic risk. The adoption of low-cost target-date funds may enhance retirement wealth by as much as 50% over a 30-year horizon.

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References

2001Boys will be Boys: Gender, Overconfidence, and Common Stock Investment 2014The Economic Importance of Financial Literacy: Theory and Evidence 2007Financial Literacy and Stock Market Participation 2001The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior 2007Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth 2005Consumption and Portfolio Choice over the Life Cycle 2001Naive Diversification Strategies in Defined Contribution Saving Plans 2002Strategic Asset Allocation

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