," a speech presented before the Financial Analysts Seminar Sponsored by the Association for Investment Management and Research At Northwestern University, Evanston, Illinois July 20, 1997.
For those papers which aren't freely available online, we've tried to include brief summaries.Asset allocation refers to the division of one's investment portfolio across the various asset classes.At the highest level, this refers to a split between stocks and bonds.This study concludes that strategic asset allocation only explains about 77.5% of the variability of portfolio returns, not 90 % as suggested by Brinson et. This study suggests that, in order to minimize shortfall risk, it may be appropriate for investors to maintain 100% stock allocations well into their retirements (i.e., as late as age 75 for men and 80 for women). Kaplan, "Does Asset Allocation Policy Explain 40, 90, or 100% of Performance? Consumers are increasingly being led to believe that use of a Monte Carlo simulator accurately projects the probability of meeting their financial goals. We believe that Monte Carlo simulators may be useful in educating clients about the nature of risk and return tradeoffs, but they certainly shouldn't be counted on to determine one's asset allocation.In general, we do not agree that most retirees should use such a high stock allocation unless they have a very high willingness and ability to tolerate risk. The principal problem with them is that the entire analysis depends solely on the validity of the data inputs as predictors of the future.