How to invest over the life cycle: Insights from theory |
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Authors: | Martin Wallmeier Florian Zainhofer |
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Institution: | (1) Chair for Financial Management and Accounting, University of Fribourg, Bd. de Pérolles 90, CH-1700 Fribourg, Switzerland |
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Abstract: | We analyse the state of the art in the field of life cycle portfolio choice, a recent strand of the literature on intertemporal
portfolio selection. Life cycle models are designed to identify optimal savings and portfolio policies over the lifetime of
investors. They can help to improve pension schemes by showing how these could be specifically tailored to the individual
employee’s circumstances to overcome the ‘one-size-fits-all’ philosophy still prevailing in parts of the mandatory retirement
savings system. To facilitate comparison, we first describe set-up, solution method and characteristic results for a basic
model and then derive a general framework to classify existing contributions. We highlight the models’ strengths and weaknesses
and assess their ability to resolve existing portfolio puzzles. Lessons from the literature are summarized and promising areas
for further research identified.
JEL classifications G11, D14, D91, H55 |
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Keywords: | Personal finance financial planning life cycle model portfolio choice |
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