Portfolio Choice, Trading, and Returns in a Large 401(K) Plan

Center for Retirement Research Working Paper No. 2000-06

49 Pages Posted: 29 Nov 2000

See all articles by Pierluigi Balduzzi

Pierluigi Balduzzi

Boston College - Carroll School of Management

Julie R. Agnew

College of William and Mary - Mason School of Business

Annika E. Sundén

Stockholm University - Swedish Institute for Social Research (SOFI)

Date Written: December 2000

Abstract

This paper examines portfolio choice, trading behavior, and realized rates of return of more than seven thousand 401(k) retirement accounts during the April 1994-August 1998 time period. The evidence on equity allocations is indicative of prudent behavior: on average our investors hold 40% of their 401(k) portfolios in stocks. In addition, patterns of stock allocations by marital status, age, and earnings are broadly consistent with the implications of normative models: stock allocations are higher for married investors, for younger investors, and for investors with higher earnings. The evidence on trading activity indicates very limited portfolio re-shuffling, which stands in sharp contrast to existing evidence from discount brokerage accounts: 70% of the plan participants do not rebalance their portfolio more than once, average re-balancing frequency is one trade every 33 months, and average monthly turnover is in the order of 2%. This evidence is consistent with the implications of models of optimal portfolio choice with realistic transaction costs.

Keywords: Social Security, Retirement, 401(k), Portfolio

JEL Classification: G11, J32

Suggested Citation

Balduzzi, Pierluigi and Richardson Agnew, Julie and Sundén, Annika E., Portfolio Choice, Trading, and Returns in a Large 401(K) Plan (December 2000). Center for Retirement Research Working Paper No. 2000-06, Available at SSRN: https://ssrn.com/abstract=252048 or http://dx.doi.org/10.2139/ssrn.252048

Pierluigi Balduzzi

Boston College - Carroll School of Management ( email )

Department of Finance
140 Commonwealth Avenue - Fulton Hall 438
Chestnut Hill, MA 02467
United States
617-552-3976 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www.bc.edu/bc_org/avp/csom/faculty/

Julie Richardson Agnew

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Annika E. Sundén (Contact Author)

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Kyrkgatan 43B
SE-106 91 Stockholm
Sweden

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