Asset Allocation, Time Diversification and Portfolio Optimization for Retirement

Abstract

Using the data of stock, commodity and bond indexes from 2002 to November 2010, this research was carried out by employing Bootstrapping Simulation technique to find an optimal portfolio (portfolio optimization) for retirement, and the effect of diversification based on increased length of investment period (time diversification) with respect to the lengths of retirement investment period and the amounts required for spending after retirement in various occasions. The study analyzed for an optimal allocation of common stock, commodity and government bond to achieve the target rate of return for retirement by minimizing the portfolio risk as measured from the standard deviation. Apart from the standard deviation of the rate of return of the investment portfolio, this study also viewed the risk based on the Value at Risk concept to study the downside risk of the investment portfolio for retirement.

Dynamic Spending and Risk-Based Simulation in Retirement Planning

“…In the study, Treasury bonds, Treasury bills and equities were considered along with different damping factors to determine the estimated value of investments in today's dollar term in each scenario. Through the use of a bootstrapping simulation approach and the RISKOptimizer program, Panyagometh (2011) determined the optimal asset allocation of common equity, commodity and government bonds in the Thai market to achieve the target rate of returns by minimizing portfolio risks measured through standard deviation. Additionally, a more recent study by Panyagometh (2013) Moreover, there is useful previous research that has explored the optimal portfolio structures in order to achieve the maximum utility of terminal retirement wealth.…”