Download This PaperBeyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice
86 Pages Posted: 1 Nov 2023 Last revised: 5 Mar 2025
Date Written: March 03, 2025
Abstract
We challenge two tenets of lifecycle investing: (i) diversify across stocks and bonds and (ii) reduce equity allocations with age. An optimal lifetime allocation of 33% domestic stocks, 67% international stocks, 0% bonds, and 0% bills vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests. Our lifecycle model preserves crucial time-series and cross-sectional dependencies in asset returns and addresses small sample issues in US data. Our investors prefer diversifying with international stocks, not bonds. Target-date fund investors need 61% more pre-retirement savings to match the all-equity strategy’s expected utility over retirement consumption and bequest.
Keywords: Lifecycle asset allocation, Retirement savings, Target-date funds, Long-horizon returns
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JEL Classification: C15, D14, G11, G17, G51
Suggested Citation: Suggested Citation
Anarkulova, Aizhan and Cederburg, Scott and O'Doherty, Michael S., Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice (March 03, 2025). Available at SSRN: https://ssrn.com/abstract=4590406 or http://dx.doi.org/10.2139/ssrn.4590406
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