What is the appropriate number of funds to offer in a retirement plan? According to the Profit Sharing Council of America’s 53rd Annual Survey, the average retirement plan has 18 investments. In 1995, a Columbia business professor, Sheena Iyengar, conducted a study in which she set up one tasting booth with a wide assortment of 24 different jams and another booth with only six jams for customers to sample. She counted how many people visited each booth compared with how many people actually bought a jar of jam. Sixty percent of customers visited the booth offering 24 jams, but only 3% actually bought something. In contrast, only 40% of patrons visited the booth offering six jams, but 30% of visitors ended up buying something.
Iyengar's findings are applicable to not just jams, but also anything where choice is a major consideration (like investment choices in a retirement plan). Too many options typically impacts results. Simplification, while offering enough diversity, is critical to the success of all retirement plans.