Retirement

Intelligent Risk Taking: How to Secure Retirement in a Low Expected Return World

Topics - Retirement

Read Time - 25 minutes

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Intelligent Risk Taking: How to Secure Retirement in a Low Expected Return World

Retirement savers’ ability to consume in retirement is a function of how much they save, how long they invest, and what those investments return over the lifecycle. In this paper, we examine the rate of return needed to deliver a comfortable retirement based on current savings rates as well as intelligent ways to construct portfolios to achieve this rate of return. Based on reasonable long-term return assumptions, defined contribution portfolios as frequently constructed today are unlikely to achieve this required rate of return. By relaxing existing constraints and taking advantage of well-known and broadly accepted investment themes, this required rate of return can be achieved with an exceptionally well-diversified portfolio, which may also lead to a more consistent portfolio across different economic environments.

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The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

 

Hypothetical performance results have many inherent limitations, some of which, but not all, are described herein. Hypothetical performance results are presented for illustrative purposes only.

 

Diversification does not eliminate the risk of experiencing investment loss.

 

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This material is intended for informational purposes only and should not be construed as legal or tax advice, nor is it intended to replace the advice of a qualified attorney or tax advisor.