The asset allocation decision in retirement

lessons from dollar-cost averaging

Authors

  • Premal P. Vora Penn State Great Valley, 30 E. Swedesford Rd., Malvern, PA 19355, USA
  • John D. McGinnis Penn State Altoona, 3000 Ivyside Park, Altoona, PA 16601, USA

DOI:

https://doi.org/10.1016/S1057-0810(00)00055-X

Keywords:

Dollar-cost averaging, Retirement planning, Asset allocation

Abstract

How should a retiree allocate his wealth between stocks and bonds? We address this question by studying whether it would have been better to have consumed periodically from stocks than from bonds over the seven decades of U.S. financial markets beginning in 1926 and ending in 1995. We find that retirees would have consistently done better by investing in stocks as opposed to bonds. When we analyze dispersion in consumption around its mean we find that there are greater chances for low consumption from the bond portfolio and greater chances for high consumption from the stock portfolio. Thus, we challenge the conventional wisdom that one should move away from stocks and towards bonds as one ages. © 2000 Elsevier Science Inc. All rights reserved.

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Published

2000-03-30

How to Cite

Vora, P. P., & McGinnis, J. D. (2000). The asset allocation decision in retirement: lessons from dollar-cost averaging. Financial Services Review, 9(1), 47–63. https://doi.org/10.1016/S1057-0810(00)00055-X

Issue

Vol. 9 No. 1 (2000): Financial Services Review

Section

New Original Submission

License

Copyright (c) 2000 JAI Press Inc.

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