Making a decision when faced with numerous different options can be daunting. But when it comes to your investment accounts and your financial well-being in retirement, making the right decision is quite important.

In a 2000 study, researchers from Stanford and Columbia Universities assessed people’s ability to choose in the face of many options.  In the experiment, customers shopping at an upscalesupermarket encountered a tasting booth displaying either six or twenty-four different flavors of jam. They found only 3% of those given the extensive samples (twenty-four different flavor options) purchased jam. However, those presented with only six options were ten times more likely to make a purchase.

Having a more manageable set of choices lead more people to take action.

And least you think this only applies to something trivial like flavors of jam, it carries over to investing as well.

In another study, the Pension Research Council at The Wharton School examined employees’ decisions about whether—and how much—to participate in their work 401(k) retirement plan. The study found that fewer people participate in their 401(k) plans as the number of fund options increase.

In our work with current and former Intel employees, we often hear similar questions regarding the investment options in their retirement accounts.

• Am I paying too much in fees for the funds I own?
• Am I earning too little on my accounts?
• I want to make the most of my investment accounts, but I’m not sure how?

Anytime you are faced with making a decision among a bunch of different options, having a proper framework in place to narrow the options and simplify the decision is crucial to making a smart choice.

 

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