A shorter menu of investment options is often better than a longer one, according to a study.
“Skilled menu-setters will put together a shorter menu because they will hit on the most important features,” says David Goldreich, a finance professor at the Rotman School of Management, “but less-skilled menu-setters, knowing that they’re less skilled, will put together a longer menu, just to cover all their bases.”
The study, authored by researchers at the University of Toronto’s Rotman School of Management and the Bank of Canada, used mathematical models and analysis of U.S. pension plans in 2007 from 300 organizations.
The researchers utilized a commonly used measurement called the Sharpe ratio to evaluate the quality of investment choices available to the organizations’ employees.
The study will be published in an upcoming issue of Management Science.
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