Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice

86 Pages Posted: 1 Nov 2023 Last revised: 5 Mar 2025

See all articles by Aizhan Anarkulova

Aizhan Anarkulova

Emory University - Department of Finance

Scott Cederburg

University of Arizona - Department of Finance

Michael S. O'Doherty

University of Missouri at Columbia - Department of Finance

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

JEL Classification: C15, D14, G11, G17, G51

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

Aizhan Anarkulova

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Scott Cederburg (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States

Michael S. O'Doherty

University of Missouri at Columbia - Department of Finance ( email )

Robert J. Trulaske, Sr. College of Business
362 Cornell Hall
Columbia, MO 65211
United States

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