Abstract

I evaluate the determinants that influence the likelihood that an individual rebalances the amounts held in their retirement plan or reallocate the investments they use for future contributions. I do this by analyzing quarterly administrative records of a balanced panel of 182,227 retirement plan participants that actively contributed to their retirement account over the course of 2009:Q2 – 2015:Q4. I find that defaulters are less likely to rebalance or reallocate and that advice seekers are more likely to do both. While I see very few instances of rebalancing, I conclude that marital status, investing solely in one plan offered by your institution, and a measure of personal rate of return in excess of the market, are the most influential. In reference to reallocation, I see that most of the variables have a statistically significant impact, with the personal rate of return measure having the largest actual influence on likelihood. This remains true even as I focus on a subset of defaulters and the investors that seek advice. Getting investors to utilize rebalancing and reallocating as portfolio management tools requires an understanding of the determinants of each practice, the centerpiece of this research. The evidence suggests that there are a few factors that can inform advisers and retirement administrators on who to target for rebalancing and reallocating and how to incentivize these strategies. Future research will be required to understand the value of rebalancing and reallocating and whether or not the outcomes of these activities benefit the participants.