Financial Knowledge and 401(K) Investment Performance

31 Pages Posted: 27 Mar 2015 Last revised: 28 Mar 2015

See all articles by Robert L. Clark

Robert L. Clark

North Carolina State University - Poole College of Management

Annamaria Lusardi

George Washington University - Department of Accountancy; National Bureau of Economic Research (NBER)

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 3, 2014

Abstract

Using a unique new data set linking administrative data on investment performance and financial knowledge, we examine whether investors who are more financially knowledgeable earn more on their retirement plan investments, compared to their less sophisticated counterparts. We find that risk-adjusted annual expected returns are 130 basis points higher for the most financially knowledgeable employees, and those scoring higher on our Financial Knowledge Index have slightly more volatile portfolios while they do no better diversifying their portfolios than their peers. Overall, financial knowledge does appear to help people invest more profitably; this may provide a rationale for efforts to enhance financial knowledge in the population at large.

Keywords: financial knowledge, retirement planning, investment performance

JEL Classification: D14, D91

Suggested Citation

Clark, Robert L. and Lusardi, Annamaria and Mitchell, Olivia S., Financial Knowledge and 401(K) Investment Performance (May 3, 2014). Available at SSRN: https://ssrn.com/abstract=2585239 or http://dx.doi.org/10.2139/ssrn.2585239

Robert L. Clark

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-515-5560 (Phone)
919-515-5564 (Fax)

Annamaria Lusardi (Contact Author)

George Washington University - Department of Accountancy ( email )

George Washington University School of Business
Washington, DC 20052
United States

HOME PAGE: http://business.gwu.edu/profiles/annamaria-lusardi/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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