You may have heard about experimental studies that aim to capture the human experience when provided a large variety of options. Consumers today are often bombarded with a very high number of choices when they enter shopping malls, department stores, restaurants, mobile phone stores, etc. It is likely we have all experienced a certain level of paralysis when forced to choose a wine flavor from a menu containing 37 different wine choices. That overwhelming feeling we get when we are introduced to a vast array of choices can bring about discomfort and is ultimately unfavorable.
There seems to have been an accepted dogma among marketers in the past that a greater variety of choice leads to a better customer experience. When waiters place menus at the dinner table with 22 different entrees as opposed to 6, they might think they are doing you a favor by giving you the chance to choose the “perfect” option among several others. However, it’s becoming increasingly clear that perhaps, as humans, we may be better off with only 6 options as opposed to 22. When faced with 22 different options, we may experience a level of anxiety as we jockey between whether we’re in the mood for the filet mignon or the flank steak as opposed to whether or not we’re in the mood for a steak or instead some pasta -an easier choice, no doubt!
Although some may disagree with this notion that a greater number of choices is not beneficial to the consumer, it appears that on an aggregate level, a greater number of choices does reduce customer and user experience and in this case, participation. An interesting study conducted by Psycho-Economist Sheena Lyengar, along with her team of researchers from the Columbia Business School, suggests that greater consumer choices leads to less participation in retirement savings plans. In the study, Sheena and her team surveyed nearly 1 million Americans participating in 650 different retirement plans with regards to their decisions to save for retirement. What they found was a negative correlation between the participation rate among retirees and the amount of funds being offered. In other words, participation rates among consumers being offered 3 funds was in the mid 70’s percentile, while those plans offering nearly 60 funds saw participation rates drop the 60th percentile.
Sheena and her team found that as more choices are made available to the consumer (and perhaps you could relate to this) three things happen:
- Folks procrastinate even when it goes against their best self-interest
- They’re more likely to make worse choices (worse medical choices, financial choices, et cetera)
- They’re more likely to make choices that leave them less satisfied
It is important we recognize this as not a sign to give up and forgo saving when faced with an overwhelming amount of choices, but instead as a cue to seek professional help from those offering responsible advice. We live in an age where we are routinely subjected to a large number of options. It is important we recognize this as a possible threat to our well-being and make the appropriate steps to improve the outcome. The old adage that knowledge is power can yet again yield some value as your awareness to this situation should help with future decisions. Understanding that it’s natural to feel overwhelmed when choosing the optimal location for retirement funds should encourage you to take an offensive stance and make the appropriate steps to remedy your anxiety.
Click here to view Sheena’s presentation.
Imagine you’re a mountaineer about to scale the face of El Capitan in Yosemite National Park. As you hike to the bottom of the face your level of risk to injury is relatively low. You might trip and fall on your hike but any injury is nonetheless negligible. In this situation, your exposure to downside risk is low while your upside potential is high.
Long term total stock returns are the function of two items, corporate dividends and market price changes. Economic growth leads to increased corporate sales, leading to increased corporate profits and corporate dividends. Market price direction is highly dependent on the height of the mountain and your distance from the peak.
Pretend for a moment you pulled off your best Rip Van Winkle imitation and slept through 2011. You pick up a “Year in Review” newspaper, and find out:
It was indeed a wild ride for the equity markets in 2011. The S&P 500 ended at almost exactly the same price it began the year – its only return came from the 2.11% dividend paid by S&P 500 companies. Monthly returns ranged from a decline of 7.0% in September (completing five straight months of negative market returns), to an increase of 10.9% in October.
Other incredible statistics from 
On January 18th, the World Bank cut its global growth forecast by the most in three years. The world economy will grow 2.5 percent this year, down from a June estimate of 3.6 percent, the Washington-based institution said. The euro area may contract 0.3 percent, compared with a previous estimate of a 1.8 percent gain. The U.S. growth outlook was cut to 2.2 percent from 2.9 percent.
We hope you are all getting ready for this fast approaching holiday season! And because we wanted to best prepare you for the upcoming weeks, we’d like to let you know what our support hours will be. We will be observing limited hours the following days:
The European Debacle Continues
Recently, I have had some interesting conversations that centered around how we talk ourselves out of saving money. Simply put, we tell ourselves little lies we make up in our head. We end up talking about how we spend money, as if we manage that, saving it is easy. Let’s face it, it’s much more fun to buy something than it is to save, but we all understand there needs to be a balance. Here are some common lies about saving money from 
Today the IRS posted the 
Join the 401(k) Fiduciary Advice Group
Recent Comments