The Rehabilitation of Glidepath Investing

36 Pages Posted: 29 Mar 2019 Last revised: 27 Oct 2019

See all articles by Andrew Clare

Andrew Clare

City University London - Sir John Cass Business School

James Seaton

City University London - Sir John Cass Business School

Peter N. Smith

University of York - Department of Economics and Related Studies; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Steve Thomas

City University London - Sir John Cass Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 25, 2019

Abstract

In this paper we examine the proposition of de-risking through life and the guidance offered by TDFs in the decumulation phase following retirement. Using both Monte Carlo methods along with actual historical experience we investigate the withdrawal experience associated with Glidepath Investing in the US since 1925 for conventional bond-equity portfolios. We find two very powerful and practical conclusions. First, that smoothing the returns on individual assets by simple absolute momentum or trend following techniques is a potent tool to enhance withdrawal rates, often by as much as 50% per annum. And, perhaps of even greater social relevance is that it removes the ‘left-tail’ of unfortunate withdrawal rate experiences, that is, the bad luck of a poor sequence of returns early in decumulation. We show that diversifying assets over time by switching between a risky asset and cash in a systematic way is potentially more important for the retirement income experience than diversifying one’s portfolio across a range of risky asset classes. In particular the willingness to tactically de-risk and re-risk allows the investor to stay exposed to equities in selective calendar fashion for far longer with reduced potential for painful drawdowns and raised potential for higher withdrawal rates. Second, and very importantly, we also show that Glidepath Investing is indeed a very sensible strategy within a few years of the target date. This finding provides succour to enthusiasts for target date investing in the face of the growing hostility in the literature

Keywords: Sequence Risk, Perfect Withdrawal Rate, Decumulation, Absolute Momentum,Trend Following

JEL Classification: G10, G11, G22

Suggested Citation

Clare, Andrew D. and Seaton, James and Smith, Peter N. and Thomas, Stephen H., The Rehabilitation of Glidepath Investing (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3347183 or http://dx.doi.org/10.2139/ssrn.3347183

Andrew D. Clare

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

James Seaton

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Peter N. Smith (Contact Author)

University of York - Department of Economics and Related Studies ( email )

Heslington
York 010 5DD
United Kingdom
+44 1904 433 765 (Phone)
+44 1904 433 759 (Fax)

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Stephen H. Thomas

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)

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