Excerpt: Lifecycle funds offered to retirement plan participants gradually reduce their exposure to stocks as they approach the target date of retirement. This movement away from equities and towards less volatile assets like bonds and cash is done to emphasize growth of the portfolio in the initial years and preservation of capital in the later years. We show that such deterministic switching rules produce inferior wealth outcomes for the investor compared to strategies that dynamically alter the allocation between growth and conservative assets based on cumulative portfolio performance relative to a set target.

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