Week 2 - Investment Decisions in DC Pension Plans
key biases in DC pension plan
- endorsement effect
- when company match is in company stock, has implicit endorsement effect
- naiive diversification
- influenced by composition of choices, even if some of choices are duplicative
- the marginal funds added are typically stock funds. the more options, more proportion is put into stock funds
- influenced by composition of choices, even if some of choices are duplicative
- option confusion - too many options, people either not participate or end up choosing familiar options
Annuities
like insurance. turn lump sum into ganrateed monthly payments regardless of how long you live