Investor Sophistication and Target-Date Fund Investing

Guillemette, M. A., Martin, T. K., Gibson, P. (2015). Investor Sophistication and Target-Date Fund Investing. Journal of Retirement, 2(4), 22-29.

https://doi.org/10.3905/jor.2015.2.4.022

Posted: 21 May 2019

See all articles by Michael Guillemette

Michael Guillemette

Texas Tech University - Department of Personal Financial Planning

Terrance Martin

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance; Texas Tech University

Philip Gibson

Texas Tech University

Date Written: February 18, 2015

Abstract

The Pension Protection Act of 2006 identified target-date funds as an appropriate default investment for defined contribution retirement plans. Using the 2009 National Financial Capability Study, this paper examines the relation between investor sophistication and the decision to primarily invest retirement assets in target-date funds. The results show that Americans with low investor sophistication are 22.2% more likely to primarily use target-date funds to save for retirement, compared to highly sophisticated investors. It is possible that the Pension Protection Act created a positive economic impact given that this paper provides evidence that investors who stand to benefit the most from target-date fund investment are the ones who are more likely to use the product.

Keywords: target-date fund, life-cycle fund, investor sophistication, retirement savings

JEL Classification: J26, G18, 128, O16

Suggested Citation

Guillemette, Michael and Martin, Terrance and Gibson, Philip, Investor Sophistication and Target-Date Fund Investing (February 18, 2015). Guillemette, M. A., Martin, T. K., Gibson, P. (2015). Investor Sophistication and Target-Date Fund Investing. Journal of Retirement, 2(4), 22-29. , https://doi.org/10.3905/jor.2015.2.4.022, Available at SSRN: https://ssrn.com/abstract=2596661

Michael Guillemette (Contact Author)

Texas Tech University - Department of Personal Financial Planning ( email )

1301 Akron Ave, HS-260
Box 41210
Lubbock, TX 79409-1210
United States

Terrance Martin

University of Texas - Pan American - College of Business Administration - Department of Economics & Finance ( email )

1201 W. University Drive
Edinburg, TX 78539-2999
United States
9402245027 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Philip Gibson

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,787
PlumX Metrics