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

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