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Rule-based dynamic changes to asset allocation to attain desired income levels improve performance relative to traditional static asset allocation models or age-based target-date funds.


Overview

The goal of investing for retirement is to secure a target level of income that maintains the individual’s preretirement lifestyle. Current “safe harbor” glide-path products shift investments from stocks to bonds on the basis of the individual’s age. This approach is unlikely to secure a target retirement income because the glide path is focused on the wrong goal. We tested a dynamic asset allocation strategy that takes no view of future market performance and is based on a retirement income goal. We show how this dynamic strategy could dominate standard portfolio choices. The article introduces a new way to think about intermediate retirement targets and explores the implications of the dynamic asset allocation strategy for the level of savings required to achieve a retirement goal.

About the Author(s)

Adam Kobor PhD, CFA
Arun Muralidhar PhD

Arun Muralidhar is founder and client chief investment officer of AlphaEngine Global Investment Solutions LLC, Great Falls, Virginia.