401(k) Investment Funds and the World's Nastiest Pizza | ALEX

A little while ago I wrote an article for Business Review USA on how offering fewer medical insurance plan options to employees actually helps them make and feel good about their benefits decisions. Basically, when it comes to insurance benefits, an abundance of choices can overwhelm employees and get in the way of making rational decisions.

Now it looks like the same ?less is more? approach should be applied to retirement fund options as well.

According to new research published in the August issue of the American Marketing Association?s Journal of Marketing Research, offering too many choices to ordinary investors may cause them to make weaker investments strategies.

Imagine a pizzeria that offers a ridiculous number of toppings on its menu. I?m talking about a stupid-crazy number of choices. The place has all the old favorites like sausage, mushrooms, and pepperoni, but also offers some much more exotic toppings like Kung Pao chicken, lobster tail, and?I don?t know?little fun-size Almond Joy candy bars.

As an experienced, sophisticated pizza eater, you don?t need much help navigating this kind of menu. You order what works, avoid what?s disgusting, and have an enjoyable dinner. If you?ve never seen a pizza before, though, having so many choices can be a burden.

If you were to behave with your pizza the way that people seemed to behave in the journal?s paper, you?d actually order as many toppings from the menu as you could.? Apparently, when faced with a large fund assortment size, people increased the number of funds they invested in while also spreading their money evenly among their chosen funds.

?The research shows that people get overwhelmed by choice,? explains researcher J. Jeffrey Inman. ?It is one thing to be faced with a big assortment of mustards at the grocery store, where the stakes are low. The order of magnitude is greater with mutual funds, where you feel less informed.?

To help their employees in the selection process, benefits advisors should try to make things simpler and less intimidating. Perhaps that involves offering a smaller, better-curated assortment of investment funds or helping steer people to different arrays according to their experience and comfort level. There are a number of ways to approach the issue, but investing a little in 401(k) education can make everyone feel comfortable with investing for their retirement and increase employee participation and savings rates.

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Source: http://www.meetalex.com/2012/08/401k-investment-funds-and-the-worlds-nastiest-pizza/?utm_source=rss&utm_medium=rss&utm_campaign=401k-investment-funds-and-the-worlds-nastiest-pizza

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