Lifecycle funds and wealth accumulation for retirement: evidence for a more conservative asset allocation as retirement approaches

Paper Details

Authors:

DOI: 10.61190/fsr.v19i1.4963

Journal: Financial Services Review

Year: 2010

Publisher: Academy of Financial Services

Document Type: Article

Open Access: All Open Access; Gold Open Access

Cited by: 16

Abstract

A line of recent studies cast doubt on the efficacy of the lifecycle investment strategy, which calls for switching into a more conservative investment portfolio as retirement approaches, as a suitable way to provide for the retirement needs of workers with defined-contribution pensions. After com-paring simulation outcomes for lifecycle and fixed asset allocation strategies, we determine that the lifecycle strategy can be justified even in a framework including only financial wealth. We find that investors with very reasonable amounts of risk aversion may prefer the lifecycle approach, despite the tendency for aggressive fixed allocation strategies to produce larger expected wealth. © 2010 Academy of Financial Services. All rights reserved.

Keywords

Asset allocation; Lifecycle funds; Retirement planning; Target date funds

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