Abstract

http://ssrn.com/abstract=1139110
 
 

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Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk


Ian Ayres


Yale University - Yale Law School; Yale University - Yale School of Management

Barry J. Nalebuff


Yale University - Yale School of Management

May 27, 2008


Abstract:     
By employing leverage to gain more exposure to stocks when young, individuals can achieve better diversification across time. Using stock data going back to 1871, we show that buying stock on margin when young combined with more conservative investments when older stochastically dominates standard investment strategies - both traditional life-cycle investments and 100%-stock investments. The expected retirement wealth is 90% higher compared to life-cycle funds and 19% higher compared to 100% stock investments. The expected gain would allow workers to retire almost six years earlier or extend their standard of living during retirement by 27 years.

Keywords: Diversification, Leverage, Retirement, Investment Strategy

JEL Classification: D31, G1, G11, G18, H55

working papers series


Not Available For Download

Date posted: May 30, 2008  

Suggested Citation

Ayres, Ian and Nalebuff, Barry J., Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk (May 27, 2008). Available at SSRN: http://ssrn.com/abstract=1139110 or http://dx.doi.org/10.2139/ssrn.1139110

Contact Information

Ian Ayres (Contact Author)
Yale University - Yale Law School ( email )
P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)
203-432-2592 (Fax)
Yale University - Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
Barry Nalebuff
Yale University - Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5968 (Phone)
203-432-6974 (Fax)
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