In the beginning, the 401(k) world was easy and fun. Itsmovement away from the shackles of company-controlled pension andprofit sharing plans allowed employees to make simple choicesbetween three obviously different investment options. It was notunlike a three-ring circus. Everyone wanted to go to the 401(k) andeveryone had a great time once they got there. They didn't need tomemorize reams of investment theory, they just needed an ounce ofcommon sense.
As more service providers saw the lucrative advantages ofentering the 401(k) market, Modern Portfolio Theory descended uponthe retirement plan world like a dark cloud. Gone was thechild-like joy of the three options. Entire the complex paradigm ofthe style box. Choices multiplied and trying to do well in yourretirement plan required the equivalent time and effort of studyingfor a calculus BC exam. The 401(k) was no longer a three-ringcircus you could visit every so often. It was complicated Rubik'sCube you needed to solve every day.
Right around the turn of the millennium, however, a lightappeared at the end of the tunnel. This was about the timebehavioral finance researchers discovered how useful it was toexamine 401(k) decision making.
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