Abstract
Diversification across time means changing the asset allocation over time. We show that under mild conditions diversification across time is inferior for all risk-averters and for all investment horizons, relative to a portfolio with the same average asset allocation, held constant over time. Target-date funds help reduce the variation in the asset allocation throughout the lifecycle, by implicitly considering the reduction in human capital with age. However, their structure implies two systematic deviations from constant asset allocation. We suggest a simple correction leading to a typical increase of 5%-22% in welfare.
| Original language | English |
|---|---|
| Article number | 105995 |
| Journal | Journal of Banking and Finance |
| Volume | 122 |
| DOIs | |
| State | Published - Jan 2021 |
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 8 Decent Work and Economic Growth
Keywords
- Diversification across time
- Diversification throughout time
- Glide-path
- Lifecycle investing
- Market timing
- Return chasing
- Stochastic dominance
- Target-date fund
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
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