When You Build a Portfolio, Less Is More

We tend to make the best investing choices when we're given fewer options.

A friend who works in finance for a small business recently complained to me that few of the employees participate in his company’s 401(k) plan. Low enrollment means that the plan has relatively few assets, which in turn means higher expenses. The problem, thought my friend, was that the plan didn’t offer employees a broad enough selection of mutual funds. He wanted some suggestions for additional funds that would entice more of his co-workers to sign up.

Adding more funds is precisely what he should not do. Our brains aren’t wired to choose easily among lots of options. In fact, when faced with too many choices, we punt.

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Bob Frick
Senior Editor, Kiplinger's Personal Finance