Saving for retirement: The effects of fund assortment size and investor knowledge on asset allocation strategies

We report the results of a decision simulation conducted among 211 adults whose task was to invest in a 401(k) retirement plan. We varied the number of mutual funds (three vs. twenty-one) offered for investment and assessed investing knowledge with a self-report measure. The results indicate that less knowledgeable (but not more knowledgeable) investors change their asset allocation strategies as a function of fund assortment size, such that a significantly higher proportion of dollars invested by the less knowledgeable investors is allocated to stocks when choosing from the larger assortment.