An Optimizing Framework for the Glide Paths of Lifecycle Asset Allocation Funds
In choosing a glide path strategy for asset allocation over their working lives, retirement savers face a tradeoff between the higher expected wealth provided by strategies that maintain or increase equity holdings over time, against the greater potential security offered from shifting into more conservative assets. We quantify this tradeoff with an expected utility framework for our simulated distribution of target date wealth accumulations under a variety of lifecycle, fixed, and contrarian glide path strategies. We find justification for the lifecycle strategy for savers with very reasonable amounts of risk aversion, and we also provide guidance about utility-maximizing glide paths.
|Date of creation:||Oct 2009|
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Web page: http://www.grips.ac.jp/r-center/en/discussion_papers/
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