Maximizing Returns: How to Manage a Risky Portfolio into Retirement
Open Access
- Author:
- London, Marc
- Area of Honors:
- Risk Management
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Ron Gebhardtsbauer, Thesis Supervisor
Ron Gebhardtsbauer, Thesis Honors Advisor
Zhongyi Yuan, Faculty Reader - Keywords:
- retirement
investment
investing
glide path
risk management
actuarial - Abstract:
- In order to adequately prepare for retirement, one must choose between a wide array of investment options and portfolio allocations (e.g., bonds, stocks, the bank). Conventional wisdom states that a glide path, which transitions from risky investments to more conservative ones as a worker gets closer to retirement, proves the most effective. In many ways, conventional wisdom is correct. A glide path has high stock exposure when the investor is young and able to withstand a bear market, and decreases the risky investments as he or she nears retirement. Many of these investment strategies follow a linear - or near linear - path, regardless of market conditions along the way. In search of higher returns, what if an investor pairs higher risk retention with market awareness? Historical stock data provides evidence towards the efficacy of such strategies. For instance, analyzing only one year of data closer to retirement can pay tremendous dividends. The positive relationship between risk and reward has been well defined for generations. Yet, historical data cannot perfectly predict the future. Therefore, no “one” correct answer exists in the world of investments. This paper explores the diversity of investment possibilities, and provides evidence in opposition to the universality of the glide path.