This research explores participant trading activity during 2020 for 730,533 participants obtained from Prudential Financial Inc., with a specific focus on how allocating to a product that provides guaranteed lifetime income is related to participant trading
We find that participants using any type of professionally managed portfolio solution were significantly less likely to trade in 2020 than those who were self-directing.
Among participants who were self-directing their accounts who traded in 2020, older participants made the most significant changes. These participants were also significantly less likely to use a professionally managed portfolio option, which suggests those participants who may benefit most from professional investment management are not the ones receiving it.
Participants defaulted in a multi-fund professionally managed portfolio traded less than those who were defaulted in a single fund professionally managed strategy (i.e., a target-date mutual fund). While the exact reason for this effect is unclear, a potential explanation could be that the diversification benefits of the multi-fund strategy are more apparent than a single multi-asset fund strategy (i.e., the participant would log in and see an 8+ fund portfolio versus holding a single target-date fund, which would appear to be more like a “black box”).
Older participants (age 55-70) who had higher allocations to an annuity that provided guaranteed lifetime income were less likely to trade during 2020. This suggests guaranteed (or protected) income products have the potential to not only simplify the retirement income decision process, but may also improve participant trading behaviors.
