Ever since Harry Markowitz won the Nobel Prize for his work in Modern Portfolio Theory, the financial services industry has advocated the concept of asset allocation as the critical component of a successful investment strategy. But now, a recent paper by the Center for Retirement Research at Boston College suggests that in terms of actually being able to maintain one’s lifestyle in retirement, compared to other factors, the focus on asset allocation is largely misplaced.
The paper, “How Important is Asset Allocation to Financial Security in Retirement?”, examines four variables – working longer, spending less, reverse mortgages and asset allocation – to determine the impact each has on an individual’s ability to maintain their consumption throughout retirement. Their conclusion? The impact of asset allocation is overrated.
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