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The Inattentive Participant: Portfolio Trading Behavior in 401(k) Plans

Author

Listed:
  • Olivia S. Mitchell

    (Wharton School, University of Pennsylvania)

  • Gary R. Mottola

    (Vanguard Center for Retirement Research)

  • Stephen P. Utkus

    (Vanguard Center for Retirement Research)

  • Takeshi Yamaguchi

    (Wharton School, University of Pennsylvania)

Abstract

Most workers in defined contribution retirement plans are inattentive portfolio managers: only a few engage in any trading at all, and only a tiny minority trades actively. Using a rich new dataset on 1.2 million workers in over 1,500 plans, we find that most 401(k) plan participants are characterized by profound inertia. Almost all participants (80%) initiate no trades, and an additional 11% makes only a single trade, in a two-year period. Even among traders, portfolio turnover rates are one-third the rate of professional money managers. Those who trade in their 401(k) plans are more affluent older men, with higher incomes and longer job tenure. They tend to use the internet for 401(k) account access, hold a larger number of investment options, and are more likely to hold active equity funds rather than index or lifecycle funds. Some plan features, including offering own-employer stock, also raise trading levels.

Suggested Citation

  • Olivia S. Mitchell & Gary R. Mottola & Stephen P. Utkus & Takeshi Yamaguchi, 2006. "The Inattentive Participant: Portfolio Trading Behavior in 401(k) Plans," Working Papers wp115, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp115
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    References listed on IDEAS

    as
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