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Retirement Security Law Commons

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Full-Text Articles in Retirement Security Law

Retirement Revolution: Unmitigated Risks In The Defined Contribution Society, Anne M. Tucker Oct 2014

Retirement Revolution: Unmitigated Risks In The Defined Contribution Society, Anne M. Tucker

Anne Tucker

A revolution in the retirement landscape over the last several decades shifted the predominant savings vehicle from traditional pensions (a defined benefit plan) to self-directed accounts like the 401(k) (a defined contribution plan) and has drastically changed how people invest in the stock market and why. The prevalence of self-directed, defined contribution plans has created our defined contribution society and a new class of investors — the citizen shareholders — who enter private securities market through self-directed retirement plans, invest for long-term savings goals and are predominantly indirect shareholders. With 90 million Americans invested in mutual funds, and nearly 75 million ...


Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice, Jill E. Fisch, Tess Wilkinson-Ryan Jan 2014

Why Do Retail Investors Make Costly Mistakes? An Experiment On Mutual Fund Choice, Jill E. Fisch, Tess Wilkinson-Ryan

Faculty Scholarship at Penn Law

There is mounting evidence that retail investors make predictable, costly investment mistakes, including underinvestment, naïve diversification, and payment of excessive fund fees. Over the past thirty-five years, however, participant-directed 401(k) plans have largely replaced professionally managed pension plans, requiring unsophisticated retail investors to navigate the financial markets themselves. Policy-makers have struggled with regulatory interventions designed to improve the quality of investment decisions without a clear understanding of the reasons for investor mistakes. Absent such an understanding, it is difficult to design effective regulatory responses.

This article offers a first step in understanding the investor decision-making process. We use an ...