Investor Sophistication and Target-Date Fund Investing

Guillemette, Michael A.; Martin, Terrance K.; Gibson, Philip

doi:10.3905/jor.2015.2.4.022

Cited by 3 publications

(5 citation statements)

References 17 publications

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“…Similarly, high subjective represents above-median values to the subjective investment knowledge question with the opposite representing low subjective. Our measure of investor sophistication allows us to examine investor sophistication in greater detail than Guillemette et al. (2015), for instance.…”

Section: Methodsmentioning

confidence: 99%

“…In the current study, an alternative measure of financial literacy, investor sophistication, is employed. Investor sophistication has been found to influence credit-card behavior (Allgood and Walstad, 2013), investment decisions such as target-date fund investing (Guillemette et al, 2015), retirement preparedness (Kim and Hanna, 2015), and housing leverage (Kim et al, 2016). Using dataset from the 2009 NFCS, Guillemette et al (2015) observed that investors with low sophistication are less likely to invest in target-date funds.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

“…Investor sophistication has been found to influence credit-card behavior (Allgood and Walstad, 2013), investment decisions such as target-date fund investing (Guillemette et al, 2015), retirement preparedness (Kim and Hanna, 2015), and housing leverage (Kim et al, 2016). Using dataset from the 2009 NFCS, Guillemette et al (2015) observed that investors with low sophistication are less likely to invest in target-date funds. They attributed their findings to bounded rationalitythe fact that people's ability to make rational decisions may be limited by several factors including cognitive ability, time use, and information availability.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

“…Previous studies have used indexes and factor analysis to measure investor/financial sophistication (Huston et al, 2012;Smith et al, 2012;Guillemette et al, 2015). However, following Woodyard and Robb (2016) and Allgood and Walstad (2013), the current study created four mutually exclusive categories from objective and subjective investment knowledge to represent investor sophistication.…”

Section: Main Explanatory Variablementioning

confidence: 99%

“…, 2016). Using dataset from the 2009 NFCS, Guillemette et al. (2015) observed that investors with low sophistication are less likely to invest in target-date funds.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

See 4 more Smart Citations

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

Korankye

Pearson

Salehi

2022

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PurposeAlthough annuitization provides insurance against longevity risk that can benefit households, researchers have uncovered an annuitization puzzle, which suggests households are reluctant to annuitize their wealth. This study contributes to the discussions on the annuitization puzzle by examining investor sophistication and owning annuities in non-retirement accounts.Design/methodology/approachThe study utilizes data from the 2018 U S National Financial Capability Study (NFCS). The empirical analyses are based on logistic regression estimates of annuity ownership on investor sophistication. Interpretations are based on odds ratios.FindingsThe findings indicate that investor sophistication contributes to the annuity puzzle. Investors with low objective and high subjective investment knowledge (overconfident investors) are more likely to own annuities compared to those with low objective and low subjective investment knowledge. However, investors with high objective and low subjective investment knowledge (under-confident investors) are less likely to choose annuity ownership compared to those with low objective and low subjective investment knowledge. The findings and ensuing discussion highlight the importance of annuitization when planning for retirement, with implications for financial service professionals.Research limitations/implicationsThe measure of investor sophistication does not assess the difficulty level of each financial knowledge question. The questions used to construct the investor sophistication variable are based on general investment knowledge. In addition, the annuity ownership variable used in this study pertains to investments outside retirement accounts. Despite these limitations, the findings highlight the importance of annuitization when planning for retirement.Originality/valueUnlike prior studies, the authors consider four mutually exclusive measures of investor sophistication constructed from measures of objective and subjective investment knowledge to understand the effect of investor sophistication on annuity ownership in the United States.

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Section: Methodsmentioning

confidence: 99%

Section: Conceptual Frameworkmentioning

confidence: 99%

Section: Conceptual Frameworkmentioning

confidence: 99%

Section: Main Explanatory Variablementioning

confidence: 99%

“…, 2016). Using dataset from the 2009 NFCS, Guillemette et al. (2015) observed that investors with low sophistication are less likely to invest in target-date funds.…”

Section: Conceptual Frameworkmentioning

confidence: 99%

See 3 more Smart Citations

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

Korankye

Pearson

Salehi

2022

View full text Add to dashboard Cite

show abstract

“Do it myself” or “do it for me”? : focusing on behavioural and needs aspects of investment decision among retirement plan participants

Lim,

Stebbins,

Sholin

2023

Applied Economics Letters

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Retirement Income Sources and Subjective Financial Well-Being: A Comparison of Retirees and Non-Retirees

Lim

Lee²

2021

Journal of Financial Counseling and Planning

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This study examined whether retirement income sources matter for the subjective financial well-being of retirees and the subjective retirement savings adequacy of non-retirees. Using nationally representative data from the 2017 Survey of Household Economics and Decisionmaking, the study found that while income from a defined benefit (DB) plan, defined contribution (DC) plan, and an individual retirement account (IRA) were positively related to the subjective financial well-being of retirees, income from employment and family were negatively related to their subjective financial well-being. Also, retirement preparation with a DB, DC, and IRA was positively related to subjective retirement savings adequacy for non-retirees. The moderating role of age in the relationship between the form of retirement savings for non-retirees and their subjective retirement savings adequacy was significant. Because of the growing importance of individual responsibility for retirement planning, the present study adds to the financial planning knowledge of financial practitioners, educators, and researchers.

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Investor Sophistication and Target-Date Fund Investing

Cited by 3 publications

References 17 publications

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

“Do it myself” or “do it for me”? : focusing on behavioural and needs aspects of investment decision among retirement plan participants

Retirement Income Sources and Subjective Financial Well-Being: A Comparison of Retirees and Non-Retirees

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