Rules of Thumb versus Industry Glide Paths: Some Bootstrapping Evidence
Department or Administrative Unit
Finance and Supply Chain Management
The authors compare the performance of retirement portfolios using the average glide path of five popular target date funds to general rules of thumb for asset allocation. Surprisingly, the industry average target date fund has similar return and risk as the “120 minus your age rule”. In addition, a simple “140 minus your age rule” produces greater expected savings at retirement and a lower failure rate for average US investors retiring in their early 60s. A naïve approach such as the “120 minus your age” rule or the “140 minus your age” can benefit average US employees by reducing transaction costs, improving retirement balances and increasing the probability of a comfortable retirement through an easy-to-understand investing rule.
Pae, Y., & Atra, R. (2020). Rules of Thumb versus Industry Glide Paths: Some Bootstrapping Evidence. The Journal of Investing, 29(3), 23–37. https://doi.org/10.3905/joi.2020.1.121
The Journal of Investing
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