The study "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice" https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406
challenges traditional beliefs in lifecycle investing strategies, offering compelling insights:
**Rejection of Traditional Lifecycle Strategies:**
- Challenging the conventional wisdom of diversifying across stocks and bonds and reducing equity allocations as investors age, as commonly observed in target-date funds.
**Optimal Allocation:**
- Research indicates that an all-equity portfolio with 33% domestic stocks and 67% international stocks outperforms traditional stock-bond strategies. This approach supports wealth accumulation, retirement consumption, capital preservation, and bequest generation.
**Superior Performance:**
- The all-equity model demonstrates superior performance in retirement consumption and bequests, requiring less pre-retirement savings compared to age-based strategies in target-date funds.
**Diversification Preference:**
- Advocating for diversification across international stocks over bonds, highlighting the benefits of global equity exposure for long-term wealth growth.
**Methodological Rigor:**
- The study's robust methodology, considering time-series and cross-sectional dependencies in asset returns while addressing biases in U.S. data, ensures reliable results.
**Implications for Investors:**
- Conventional target-date funds may not be optimal for long-horizon investors. Maintaining a high equity allocation, especially with international diversification, throughout the investment lifecycle could yield better outcomes.
The study recommends a strategic shift towards high equity allocations and international diversification for enhanced long-term performance. While agreeing with the authors' conclusion, I proposed a portfolio with 80% allocation to US domestic stocks (S&P 500) and 20% to international stocks instead of 33% domestic stocks and 67% international stocks for improved long-term results.
