For Older Investors, Old Rules May Not Apply
By TARA SIEGEL BERNARD
Published: June 19, 2009
THE NEW YORK TIMES
…a new study that contends holding stocks over long periods of time may be riskier than previously thought…most investment research only accounted for the risk of short-term market swings around the stock market’s average gain over time…doesn’t factor in the fact..that the average itself is subject to change...
http://www.nytimes.com/2009/06/20/your-money/individual-retirement-account-iras/20money.html?em
The study referenced in the article:
Are Stocks Really Less Volatile in the Long Run?
by Lubos Pastor and Robert F. Stambaugh
First Draft: April 22, 2008
This revision: May 22, 2009
Abstract:
Conventional wisdom views stocks as less volatile over long horizons than over short horizons due to mean reversion induced by return predictability. In contrast, we find stocks are substantiallymore volatile over long horizons from an investor’s perspective. This perspective recognizes that parameters are uncertain, even with two centuries of data, and that observable predictors imperfectly deliver the conditional expected return. Mean reversion contributes strongly to reducing long-horizon variance, but it is more than offset by various uncertainties faced by the investor, so that annualized 30-year variance is nearly 1.5 times the 1-year variance. The same uncertainties also make target-date funds undesirable to a class of investors who would otherwise find them appealing.
The study can be downloaded from the following website:
http://papers.ssrn.com/sol3/papers.c...act_id=1136847
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