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Retirement Savings Policy by Michael P. Barry

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Chapter 18 Adequate Investment—The Asset Allocation Challenge

The second 401(k) adequacy challenge is: once we have gotten the participant to save an adequate amount, how do we get him to invest it efficiently, that is, invest it in a way that produces a reasonable (or even, optimal) return? In this regard, there are two major issues: asset allocation and fees. In this chapter we deal with the first issue, asset allocation.

As with the first adequacy challenge (adequate savings), the problem with respect to asset allocation is how to produce optimum outcomes—the appropriate asset allocation—under a system (the 401(k) plan) that prioritizes participant choice.

There are different views about the nuances of asset allocation, but there is broad ...

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