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

70 Pages Posted: 1 Nov 2023

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: October 2, 2023

Abstract

We challenge two central tenets of lifecycle investing: (i) investors should diversify across stocks and bonds and (ii) the young should hold more stocks than the old. An even mix of 50% domestic stocks and 50% international stocks held throughout one’s lifetime vastly outperforms age-based, stock-bond strategies in building wealth, supporting retirement consumption, preserving capital, and generating bequests. These findings are based on a lifecycle model that features dynamic processes for labor earnings, Social Security benefits, and mortality and captures the salient time-series and cross-sectional properties of long-horizon asset class returns. Given the sheer magnitude of US retirement savings, we estimate that Americans could realize trillions of dollars in welfare gains by adopting the all-equity strategy.

Keywords: Retirement, retirement savings, target-date funds, survivor bias, easy data bias

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 (October 2, 2023). 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
401 Cornell Hall
Columbia, MO 65211
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,528
Abstract Views
2,704
Rank
23,599
PlumX Metrics