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Investment principles for individual retirement accounts

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  • Malliaris, A.G.
  • Malliaris, Mary E.

Abstract

The phenomenal growth of individual retirement accounts in the US, and globally, challenges both individuals and their advisors to rationally manage these investments. The two essential differences between an individual retirement account and an institutional portfolio are the length of the investment horizon and the regularity of monthly contributions. The purpose of this paper is to contrast principles of institutional investing with the management of individual retirement accounts. Using monthly historical data from 1926 to 2005 we evaluate the suitability for managing individual retirement portfolios of seven principles employed in institutional investing. We discover that some of these guidelines can be beneficially applied to the investment management of individual retirement accounts while others need to be reconsidered.

Suggested Citation

  • Malliaris, A.G. & Malliaris, Mary E., 2008. "Investment principles for individual retirement accounts," Journal of Banking & Finance, Elsevier, vol. 32(3), pages 393-404, March.
  • Handle: RePEc:eee:jbfina:v:32:y:2008:i:3:p:393-404
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    References listed on IDEAS

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    1. Thomas A. Garrett & Russell M. Rhine, 2005. "Social security versus private retirement accounts: a historical analysis," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 103-121.
    2. Alan Greenspan, 2005. "Future of the Social Security program and economics of retirement: testimony before the Special Committee on Aging, U.S. Senate, March 15, 2005," Speech 61, Board of Governors of the Federal Reserve System (U.S.).
    3. Campbell, John Y. & Viceira, Luis M., 2002. "Strategic Asset Allocation: Portfolio Choice for Long-Term Investors," OUP Catalogue, Oxford University Press, number 9780198296942.
    4. George M. Constantinides, 2002. "Rational Asset Prices," Journal of Finance, American Finance Association, vol. 57(4), pages 1567-1591, August.
    5. Gerald P. Dwyer, 2005. "Social Security private accounts: a risky proposition?," Economic Review, Federal Reserve Bank of Atlanta, issue Q 3, pages 1-13.
    6. Laurence J. Kotlikoff, 2006. "Is the United States bankrupt?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 235-250.
    7. Constantinides, George M., 1979. "A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(02), pages 443-450, June.
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    Cited by:

    1. Dirk Ulbricht, 2014. "John Doe's Old-Age Provision: Dollar Cost Averaging and Time Diversification," Discussion Papers of DIW Berlin 1376, DIW Berlin, German Institute for Economic Research.
    2. Dirk Ulbricht, 2013. "Stock Investments for Old-Age: Less Return, More Risk, and Unexpected Timing," Discussion Papers of DIW Berlin 1324, DIW Berlin, German Institute for Economic Research.
    3. Angelidis, Timotheos & Tessaromatis, Nikolaos, 2010. "The efficiency of Greek public pension fund portfolios," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2158-2167, September.

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