Portfolio Construction
The Future of Life-Cycle Saving and Investing
October 1, 2007
Topics - Portfolio Construction Retirement
Life-cycle finance is the branch of finance that affects everyone. It deals with questions faced by individuals seeking to get ahead: How much should I save? What should I invest in to build wealth? When I retire or if I become unemployed, how much of my savings can I spend each year? Is there something I can do to make sure I do not outlive my savings? What can my spouse and children expect to inherit?
Despite the urgent needs represented by these questions, financial researchers have devoted relatively little attention to most of them. “What should I invest in?” has received the lion’s share of the attention, producing a well-accepted body of theory about how to build optimal portfolios.
The work on understanding life-cycle finance has fallen to professors of finance, insurance professionals, risk managers, and investment managers and other financial institution executives. Lawmakers, lawyers, regulators and accountants also have played major roles, as have pension plan executives — a broad category that includes corporate managers, government officials and labor union representatives.
To further research in the field, the Research Foundation of CFA Institute teamed up with Boston University and the Federal Reserve Bank of Boston to present a conference exploring the frontiers of life-cycle finance. This volume presents the proceedings of this event.
This document is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein.
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This material is not research and should not be treated as research. This paper does not represent valuation judgments with respect to any financial instrument, issuer, security or sector that may be described or referenced herein and does not represent a formal or official view of AQR. The views expressed reflect the current views as of the date hereof and neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Charts and graphs provided herein are for illustrative purposes only. The information in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, neither AQR nor the author guarantees the accuracy, adequacy or completeness of such information. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be relied on in making an investment or other decision. There can be no assurance that an investment strategy will be successful. Historic market trends are not reliable indicators of actual future market behavior or future performance of any particular investment which may differ materially, and should not be relied upon as such. Diversification does not eliminate the risk of experiencing investment losses.
The information in this paper may contain projections or other forward-looking statements regarding future events, targets, forecasts or expectations regarding the strategies described herein, and is only current as of the date indicated. There is no assurance that such events or targets will be achieved, and may be significantly different from that shown here. The information in this document, including statements concerning financial market trends, is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons.