Should you go 100% Equities?

Hi Community -

You may have heard about the recent academic paper that favours 100% Equity allocation (no Bonds). ‘Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice’ by Scott Cederburg, Michael O’Doherty, and Aizhan Anarkulova.

There was a lot of noise about it in US/Canada.

This paper challenges traditional asset allocation and its conclusions are sometimes implemented by individual investors.

You may want to read this before you change your portfolio:

What Sets This Study Apart? It takes a perspective of investors from 38 different countries and uses multi-year blocks of data, allowing stocks to rebound.

Why’s Everyone Talking About It? Its bold suggestions, like eliminating bonds from a portfolio, even in retirement, or advocating for a 35-50% home-country bias are highly controversial. We disagree with both conclusions.

Pre-Retirement Planning – The shift away from bonds isn’t driven by the international perspective, but mostly by the study’s approach to using long data blocks. That’s why an investor should assess whether her timeframe is similar to the study’s— four decades of working life followed by retirement. In those cases, a 100% global portfolio could make sense. However, any 100% Equity portfolio is not efficient.

Post-Retirement Strategies – The evidence for a home-country bias is close to statistical noise, with a weak narrative. In reality, the data lends support to a global Equity portfolio. The analysis suffers from misclassification of some Equity, and a significant number of Fixed Income markets. The overall volatility data is skewed by one country. The study also doesn’t account sufficiently for today’s Equity correlations, and does not include data that may be relevant in the future.

Read the whole review of this academic paper.

Have a great week.