Lifecycle Investing: Stocks versus Bonds

This research paper critically examines conventional lifecycle investment advice, specifically the recommendation to diversify with bonds and decrease equity exposure with age. The authors propose an alternative optimal lifetime allocation heavily weighted towards international stocks and completely excluding bonds and bills, asserting its superior performance in wealth accumulation, retirement income, capital preservation, and bequests compared to age-based stock-bond strategies and target-date funds. Their model utilizes a robust bootstrap approach with extensive global historical data to account for asset return dependencies and long investment horizons. The findings suggest that diversifying with international equities is more beneficial than bonds for long-term investors, challenging the regulatory preference for age-based asset allocation in retirement plans.

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