Hitting or missing the retirement target
comparing contribution and asset allocation schemes of simulated portfolios
DOI:
https://doi.org/10.61190/fsr.v16i3.4892Keywords:
Portfolio risk, Retirement planningAbstract
Personal financial planning entails establishing retirement portfolio goals, which may be identified as specific portfolio target values. The problem of investing to build a retirement portfolio that achieves a specified value at retirement can be modeled as a dynamic multiperiod portfolio problem. Although theoretically robust, the dynamic programming approach to multiperiod portfolio analysis is computationally intractable. In contrast, this paper uses Monte Carlo simulation to analyze specific asset allocations in the context of multiperiod planning. We consider achieving a target portfolio value at a specific point in time. We conclude that 'life-cycle funds' that reduce equity allocations over time fail to increase the likelihood of reaching a targeted portfolio value compared with fixed asset allocation models (e.g., 80% equity/20% bond).
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