Dynamic Lifecycle Strategies for Target DateRetirement Funds

Abstract

1. Anup K. Basu 1. is a lecturer in the School of Economics and Finance at Queensland University of Technology in Brisbane, Australia. (a.basu{at}qut.edu.au) 2. Alistair Byrne 1. is a principal consultant at Investit Ltd in London, U.K. (alistair.byrne{at}investit.com) 3. Michael E. Drew 1. is a professor of finance in the Department of Accounting, Finance and Economics at Griffith University in Brisbane, Australia. (michael.drew{at}griffith.edu.au) <!-- --> 1. To order reprints of this article, please contact Dewey Palmieri at dpalmieri{at}iijournals.com or 212-224-3675 . Lifecycle funds offered to retirement plan participants gradually reduce exposure to stocks as the funds approach the target date of the participants’ retirement.The authors show that such deterministic switching rules produce inferior wealth outcomes for the investor compared to strategies that dynamically alter the allocation between growth and conservative assets based on cumulative portfolio performance relative to a set target.The dynamic allocation strategies proposed in this article exhibit almost stochastic dominance over strategies that unidirectionally switch assets without consideration of portfolio performance. TOPICS: [Retirement][1], [portfolio construction][2] [1]: https://www.pm-research.com/topic/retirement [2]: https://www.pm-research.com/topic/portfolio-construction