Research area: micro, finance
Department: Financial Planning (FinX, www.finx.nl)
Supervisor: Ronald Janssen
Description: Life cycle investment products are becoming more and more popular. This increased interest stems from new regulation (“Pensioenwet”), responsible investing (“zorgplicht”) and claims of recent years. However, in the advisory processes of individuals several aspects of life cycle investing are not taken into account properly yet. Instead it is often suggested as if one life cycle mix would be appropriate for all situations of individuals which is very likely not the case. One question if for example how the investment risk should be decreased exactly. Should this be done in a simple linear fashion, is this dependent on the remaining investment horizon, the initial asset allocation, etc.? Also is there still little attention for cash flow aspects. What are for example the effects of lump sum investments or periodic investments? And what to think about the purposes on which the investment proceedings need to be spend at the end of the horizon? The objective of this project is to investigate how a dynamic life cycle investment strategy can be defined and to identify the key differences between a “standard” and a dynamic life cycle strategy.
Background information:
A.L. Bovenberg, R. Koijen, T.E. Nijman and C. Teulings (2007), “Saving and Investing over the Life Cycle and the role of Collective Pension Funds”, Netspar Panel Paper nr. 1.
Papers presented at the seminar “The Future of Life-Cycle Saving & Investing”, October 2006, Boston. (www.bos.frb.org/economic/conf/lcsi2006/index.htm)