For at least the last 70 years or so, there have been two guiding principles of portfolio management. The first is that you should spread your risk between different asset classes, with the general consensus being that those should be principally equities and bonds. The second principle is that, as you get older, you should gradually reduce your exposure to equities and increase your exposure to bonds.
These two principles are easy to understand and are now so deeply ingrained in us that they are hardly ever challenged. But what if it’s time for a rethink? Indeed, what if these sacred principles weren’t such great ideas all along?
A paper published later last year explores optimal asset allocation and suggests that a portfolio holding 100% stocks and no bonds at all is generally best, even if (wait for it) you’re already in retirement.
The paper is entitled Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice, and it was authored by three finance professors in the United States — Scott Cederburg from the University of Arizona, Aizhan Anarkulova from Emory University, and Michael S. O’Doherty from the University of Missouri.
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Here are some other recent posts you may have missed:
DIY financial advice is a big risk
Diversify, diversify, diversify
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