Defined Duration Investing

Abstract

The goal of this paper is to provide a framework for understanding the appropriate time horizons for certain asset classes by quantifying their specific duration. We then use that duration framework to apply an asset-liability matching methodology across all time horizons with the goal of helping financial planners and investors implement more behaviorally robust and planning-based investment portfolios. This “Defined Duration” approach enhances behavioral alpha by giving investors more certainty in their portfolio across specific time horizons thereby reducing activity and maintaining a more predictable financial planning process. We believe financial planners can use this approach to help investors establish financial planning based portfolios that help advisors better communicate the goals of the assets relative to specific future liabilities thereby enhancing client relationships and improving performance by improving behavior.