Template-Type: ReDIF-Paper 1.0
Author-Name: Doriana Ruffino
Author-X-Name-First: Doriana 
Author-X-Name-Last: Ruffino
Author-Email: rdoriana@bu.edu
Author-Workplace-Name: Boston University, Department of Economics

Author-Name: Jonathan Treussard	
Author-X-Name-First: Jonathan 
Author-X-Name-Last:   Treussard
Author-Email: jtreussa@bu.edu
Author-Workplace-Name: Boston University, Department of Economics

Title:Optimal Age-Based Portfolios with Stochastic
Investment Opportunity Sets


Abstract:In an environment with stocks and short-term debt, random changes in the risk-
reward frontier produce hedging demands for equities, implying that portfolio policies
supporting optimal life-cycle consumption are rarely mean-variance e¢ cient. Pursuing
optimal life-cycle portfolio policies is technologically feasible but it represents a sig-
ni?cant burden for individuals and ?nancial ?rms acting as ?duciaries. As a result,
investors often rely on relatively simple investment heuristics, most often age-based
portfolio policies that rebalance the investor?s portfolio as a function of age alone. We
?nd that (i) the welfare losses associated with these policies are often negligible, so that
the trade-o¤ between ?rst-best policies and simpler optimal age-based policies likely
favors the approximate policy, and that (ii) not only do initial age-based portfolios
display the same overall pattern as ?rst-best portfolios but they are also always within
the same order of magnitude.
Length:18 pages
Creation-Date: 2006-07
Revision-Date: 
Publication-Status:
File-URL: http://www.bu.edu/econ/workingpapers/papers/Optimal_Age_Based_Portfolios_RuffinoTreussard.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2006-041
Classification-JEL:
Keywords:
Handle: RePEc:bos:wpaper:WP2006-041