Life Cycle Investing, Holding Periods, and Risk

Hickman, Kent; Hunter, Hugh; Byrd, John; Beck, John H.; Terpening, Will

doi:10.3905/jpm.2001.319796

Cited by 36 publications

(24 citation statements)

References 4 publications

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“…The underutilisation of equities persists, notwithstanding the findings of various researchers that equity is the best-performing asset over the long term (Rayhorn & Janson, 2011:8;Hickman, Hunter, Byrd, Beck, & Terpening, 2001;Butler & Domian, 1993;Butler 1991;Reichenstein 1986;and Levy 1978). Nonetheless, retirement fund managers continue to limit equity in retirement portfolios because equity is perceived as a risky investment.…”

Section: Introductionmentioning

confidence: 99%

“…Financial advisors tend to follow the lifecycle investment recommendation and move retirement funds towards less risky investments with lower volatility such as bonds or treasury bills as members approach retirement This is sometimes done years before retirement is due (Hickman et al, 2001). Malkiel (2007) proposes that retirement investment portfolios should consist of varying proportions of equity, bonds, property and cash, depending on a person's position in the lifecycle.…”

Section: Lifecycle Riskmentioning

confidence: 99%

“…Appetite for risk is subject to an individual's personal inclinations, whilst capacity for risk depends on an individual's position in the retirement lifecycle (Hickman et al, 2001). …”

Section: Lifecycle Riskmentioning

confidence: 99%

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Volatility and risk of equity in retirement portfolios

Snyman

Smith

2015

J. econ. financ. sci.

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Financial planners often manage volatility believing that it is the same as managing risk. The FTSE/JSE Top 40 Index (Topi) and the FTSE/JSE All Share Index (Alsi) were used as samples to investigate volatility and risk in equity investments. A target return was determined as a benchmark for required return. The volatility analysis indicated that investments in the Topi and the Alsi were too risky for a retirement portfolio. Five sets of actual investments in the Topi and Alsi were then simulated. The internal rate of return (IRR) of each investment was determined and compared with the target return. This revealed that the risk of each of the five simulated sets of investments was acceptable for a retirement portfolio. It was concluded that volatility analysis of monthly returns was not suitable to determine the risk of equity investments in retirement portfolios.

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Section: Introductionmentioning

confidence: 99%

Section: Lifecycle Riskmentioning

confidence: 99%

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Volatility and risk of equity in retirement portfolios

Snyman

Smith

2015

J. econ. financ. sci.

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“…Strong and Taylor [6] examined the relationship between security returns and investment periods, and pointed out the time diversification phenomenon of optimal investment portfolio. Hickman, Hunter, Byrd, Beck, and Terpening [7] employed Bootstrapping technique in the monthly rate of return study during 1926-1997 and found that the chance for monthly investment in common stocks to yield less than government bonds dropped from 39% to 6% when the pre-retirement investment period increased from 1 year to 30 years. Gollier [8] proposed a theory of time diversification and absolute risk aversion for wealth.…”

Section: Literature Reviewmentioning

confidence: 99%

Asset Allocation, Time Diversification and Portfolio Optimization for Retirement

Panyagometh¹

2011

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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.

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“…Concern over the long-term performance of life cycle investment funds has begun to emerge in the literature. Hickman et al , 10 using a simulation approach and a 30-year holding period, found that life cycle investment funds yielded approximately half the median wealth associated with an index fund. Shiller,6 using historical data for the S & P 500 and bond market returns, found that life cycle investment funds failed to outperform a 3 per cent real return 32 per cent of the time.…”

Section: Introductionmentioning

confidence: 99%

Using hedge funds to enhance asset allocation in life cycle pension funds

Lewis

2009

Pensions Int J

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is the Managing Director of strategic research and risk management at the Teacher Retirement System of Texas. His current research is focused on asset allocation, semi-passive hedge fund replication, intelligent portfolio optimisation, alternative assets in life cycle investing and post-retirement optimal asset allocation.ABSTRACT Life cycle investment funds are one of the fastest growing segments in the defi ned contribution pension industry. Despite concerns over long-term investment performance, many life cycle products continue to remain focused on traditional core allocations to US stocks and US bonds, with very little exposure to alternative asset classes such as commodities or global real estate. This paper outlines a methodology for assessing the potential enhancement to long-term performance that may arise from the inclusion of hedge funds into life cycle investment products. The results indicate a potential role for hedge funds. It is argued that exposure can be most effi ciently gained via investable hedge fund of fund indices or by using widely available technology to replicate hedge fund returns via common risk factors. Because the approach developed in this paper can be easily modifi ed, it could prove useful to fi nancial planners, investors, portfolio managers and policy makers in assessing the risk and return characteristics of various life cycle asset allocation strategies.

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Life Cycle Investing, Holding Periods, and Risk

Cited by 36 publications

References 4 publications

Volatility and risk of equity in retirement portfolios

Volatility and risk of equity in retirement portfolios

Asset Allocation, Time Diversification and Portfolio Optimization for Retirement

Using hedge funds to enhance asset allocation in life cycle pension funds

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