Rethinking Lifecycle Investing – What This Means for Your Portfolio and Superannuation
3 April 2025
Hey everyone,
I recently read this thought-provoking SSRN paper titled "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice" by Anarkulova, Cederburg, and O’Doherty (Mar 2025). It really made me question some of the classic advice we've all heard about retirement investing. Here’s a quick rundown of what I took away from it and how it might affect our portfolios and superannuation strategies.
What’s the Big Idea?
Rethinking the Usual Mix:
You know how most people are told to balance stocks with bonds and gradually move away from equities as they get older? Well, this paper challenges that. Instead of the typical stock-bond mix, the authors argue that an all‐equity strategy builds wealth better over the long run.
The Optimal Mix:
The research suggests an all‐equity portfolio split into 33% domestic stocks and 67% international stocks. This mix is designed to boost wealth accumulation, support retirement spending, preserve capital, and even leave a solid bequest.
Why Go Global?
Turns out, international stocks really drive long-term returns. The study shows that including a strong international component makes a huge difference compared to sticking with bonds.
ETF Ideas for Aussie Investors
If you're in Australia and thinking about trying out this 67/33 (international/domestic) strategy, here are a couple of ETF ideas:
Vanguard MSCI Index International Shares ETF (VGS) & Vanguard Australian Shares Index ETF (VAS):
Allocation: Use VGS (MER:018%) for about 67% of your portfolio (international exposure) and VAS (0.07%) for 33% (domestic exposure).
BetaShares Combo – BGBL/A200:
BGBL (MER: 0.08%) (BetaShares Global Equity Leaders ETF): Use this ETF for your international allocation (67%).
A200 (MER: 0.04%) (BetaShares Australia 200 ETF): This ETF can cover your domestic allocation (33%).
What About Superannuation?
Even though the paper doesn’t dive into superannuation specifics, its findings definitely make you rethink traditional approaches:
Rethinking Age-Based Shifts: Most super funds lower their equity exposure as you get older. But if the research is right, keeping a higher equity mix—especially with more international exposure—could pay off better over time.
A New Way to Think About Retirement: Instead of relying on standard target-date funds that gradually shift into bonds, an all-equity approach might help you accumulate more wealth and support a more comfortable retirement.
I’d love to hear what you think about these ideas?
