Conflicted advice about portfolio diversification
DOI:
https://doi.org/10.61190/fsr.v27i1.3380Keywords:
Conflicts of interest, Financial advice, Portfolio diversificationAbstract
We investigate the validity of the argument by the financial services industry to “roll over your ‘old’ 401(k) plan” because 401(k)-type plans have a limited number of investment options, while Individual Retirement Accounts (IRAs) have a virtually unlimited number of options. We empirically analyze the diversification of a large 401(k)-type plan with only five basic investment options. Financial advisers with a conflict of interest may use strategic complexity to encourage rollovers, recommending complex portfolios to impress naïve clients who have a weak understanding of the concept of diversification, while not weighing the cost of the complex portfolios against any added benefits of diversification.
Downloads
Downloads
Published
Issue
Section
License
Copyright (c) 2018 Academy of Financial Services
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain the copyright and full publishing rights without restriction.
Author(s) grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows reusers to distribute, remix, adapt, and build upon the material in any medium or format, for noncommercial purposes only. Reusers must acknowledge the work's authorship and initial publication in this Journal.
Noncommercial means not primarily intended for or directed towards commercial advantage or monetary compensation.
In addition, FSR grants to the UGA Libraries a worldwide, non-exclusive license to all content published by the Journal, including metadata, that is necessary to publish, transmit, and index the Journal and to preserve its content over time.
