RT Journal Article
SR Electronic
T1 Diversification Across Time
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 73
OP 86
DO 10.3905/jpm.2013.39.2.073
VO 39
IS 2
A1 Ian Ayres
A1 Barry Nalebuff
YR 2013
UL https://pm-research.com/content/39/2/73.abstract
AB Young people who buy stock on margin and reduce their equity exposure as they age can reduce lifetime portfolio risk. For example, an initially leveraged portfolio produces the same mean accumulation as a constant 74% stock allocation with a 21% smaller standard deviation. Since the means are equal, the reduced volatility doesn’t depend on the equity premium. A leveraged life-cycle strategy also lets investors come closer to their utility-maximizing equity allocation. Monte Carlo simulations show that the gains continue even with equity premiums well below historical levels.TOPICS: Equity portfolio management, in markets, exchanges/markets/clearinghouses