updated: 11/6/2008 1:27:26 PM
Business professors at Butler University believe the best retirement planning strategy is to invest 100 percent in equities until 10 years before retirement. Professors Steve Dolvin, Bill Rieber and Bill Templeton have authored a paper that also suggests the remaining ten years should follow the 100 minus age allocation strategy. The paper contradicts how many people have been advised to diversify. Dolvin says the result should help calm investors who are experiencing heavy losses in the current market.
Source: Inside INdiana Business
INDIANAPOLIS – A new paper authored by Butler University business professors Steve Dolvin, Bill Rieber and Bill Templeton concludes that the best allocation strategy for individuals who are planning for retirement is to invest 100 percent in equities until 10 years prior to retirement. The remaining 10 years should follow the 100 minus age allocation strategy. These results contradict what many individuals have been told about how to diversify their portfolios.
“This result reinforces the belief that long-term investors are best served by maintaining a heavy exposure to equity early on in their careers,” said Dolvin, assistant professor of finance. “Moreover, this result should bring some calm to investors who are experiencing heavy losses in the current market.”
The professors uncovered this approach as they were examining common asset allocation strategies dating back to the 1920s, specifically static approaches (50 percent equity/50 percent debt), dynamic approaches (equity percent is equal to 100 minus age), as well as those used by the largest target date fund providers (120 minus age).
The professors say that the 100 percent approach should only be used by educated investors that can avoid common behavioral errors or those using a financial planner.
About Butler University
Challenging and enabling students to meet their personal and professional goals has guided Butler University since 1855. Today, Butler is a nationally recognized comprehensive university that blends the liberal arts with first-rate pre-professional programs. Butler is known for its vibrant campus, superior academics and dedicated faculty. The University enrolls more than 4,000 undergraduate and graduate students in five academic colleges: Business Administration, Education, Liberal Arts and Sciences, Pharmacy and Health Sciences, and Fine Arts. Located just six miles from downtown Indianapolis, Butler’s urban setting affords students internship opportunities that provide excellent graduate school and career preparation.
Source: Butler University