Chasing Returns in Retirement Accounts: Do Learning, Literacy, and Experience Matter?

We investigate the effects of financial literacy and learning on rationality in household savings decisions by studying contributions to solo 401(k) plans. Sponsors of solo 401(k) plans are typically more financially sophisticated and wealthier than the typical 401(k) account owner and invest in plans with fewer restrictions. In accordance with previous literature, we find a positive relationship between high returns and an increase in contributions, which we refer to as ``chasing returns." Specifically, we find that chasing returns is mostly driven by investors with returns in the top decile, and this behavior does not diminish as investing experience increases. Unlike some previous studies, we conclude that chasing returns does not abate with additional learning or high levels of financial sophistication. Changes in expected returns reflecting investors' personal experience - likely driven by overconfidence - is consistent with our observed behaviors.