Abstract

http://ssrn.com/abstract=2326774
 


 



The Glidepath Illusion...And Potential Solutions


Robert D. Arnott


Research Affiliates, LLC

Katrina F. Sherrerd


Research Affiliates LLC

Lillian J. Wu


Research Affiliates, LLC

June 30, 2013

Journal of Retirement, Forthcoming

Abstract:     
Target date investment strategies purport to meet the two primary objectives of any retirement savings program: maximize the real value of our nest egg, while minimizing uncertainty around the prospective income we’ll have at our disposal as we approach our retirement years. Unfortunately, the classic glidepath approach to retirement investing – moving from equity-centric to bond-centric investing as we age – does not meet these objectives.

We summarize the flaws in traditional glidepath implementation and explore illustrative changes to the rules-based, mechanistic solution for retirement planning that can improve the expected outcome for investors. We use simulations to test alternatives and find the following. First, rebalancing to a static mix beats a gradual shift to bonds (or equities for that matter, since the solutions are not linked to expected market environments). Second, adjusting the risk profile within stock and bond portfolios rather than across asset classes reins in risk more constructively than the classic glidepath solution. Third, incorporating valuation-indifferent equity strategies improves the historical performance of the solutions relative to alternatives built using cap-weighted equity indices.

Even with simplistic, rules-based approaches, we find there are better ways to achieve our financial objectives for retirement.

Number of Pages in PDF File: 25

Keywords: Target Date Fund, Glidepath, Retirement Investing, Asset Allocation, Alternative Assets

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Date posted: September 18, 2013  

Suggested Citation

Arnott, Robert D. and Sherrerd, Katrina F. and Wu, Lillian J., The Glidepath Illusion...And Potential Solutions (June 30, 2013). Journal of Retirement, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2326774

Contact Information

Robert D. Arnott
Research Affiliates, LLC ( email )
620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8701 (Phone)
949-325-8901 (Fax)
HOME PAGE: http://researchaffiliates.com/index.htm
Katrina F. Sherrerd
Research Affiliates LLC ( email )
620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8728 (Phone)
949-325-8928 (Fax)
HOME PAGE: http://researchaffiliates.com/index.htm
Lillian J. Wu (Contact Author)
Research Affiliates, LLC ( email )
620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States
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