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Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio

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Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on a Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on another free lunch that’s right under our noses? In Lifecycle Investing, Barry Nalebuff and Ian Ayres—two of the most innovative thinkers in business, law, and economics—have developed tools that will allow nearly any investor to diversify their portfolios over time. By using leveraging when young—a controversial idea that sparked hate mail when the authors first floated it in the pages of Forbes—investors of all stripes, from those just starting to plan to those getting ready to retire, can substantially reduce overall risk while improving their returns. In Lifecycle Investing, readers will learn How to figure out the level of exposure and leverage that’s right for you How the Lifecycle Investing strategy would have performed in the historical market Why it will work even if everyone does it When not to adopt the Lifecycle Investing strategy Clearly written and backed by rigorous research, Lifecycle Investing presents a simple but radical idea that will shake up how we think about retirement investing even as it provides a healthier nest egg in a nicely feathered nest.


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Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on a Diversification provides a well-known way of getting something close to a free lunch: by spreading money across different kinds of investments, investors can earn the same return with lower risk (or a much higher return for the same amount of risk). This strategy, introduced nearly fifty years ago, led to such strategies as index funds. What if we were all missing out on another free lunch that’s right under our noses? In Lifecycle Investing, Barry Nalebuff and Ian Ayres—two of the most innovative thinkers in business, law, and economics—have developed tools that will allow nearly any investor to diversify their portfolios over time. By using leveraging when young—a controversial idea that sparked hate mail when the authors first floated it in the pages of Forbes—investors of all stripes, from those just starting to plan to those getting ready to retire, can substantially reduce overall risk while improving their returns. In Lifecycle Investing, readers will learn How to figure out the level of exposure and leverage that’s right for you How the Lifecycle Investing strategy would have performed in the historical market Why it will work even if everyone does it When not to adopt the Lifecycle Investing strategy Clearly written and backed by rigorous research, Lifecycle Investing presents a simple but radical idea that will shake up how we think about retirement investing even as it provides a healthier nest egg in a nicely feathered nest.

30 review for Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio

  1. 5 out of 5

    Niel Bowerman

    This book has influenced my retirement investment strategy more than any other book I've read. Top 4 take-aways: 1. Most people diversify their investments across asset classes. This book argues persuasively that diversifying investments across time also makes sense. 2. To do this, consider investing your retirement on 2x leverage when young. Only do this for retirement assets that you don't need for 30 years, not funds you might want soon. When you are young you have long enough for the increase This book has influenced my retirement investment strategy more than any other book I've read. Top 4 take-aways: 1. Most people diversify their investments across asset classes. This book argues persuasively that diversifying investments across time also makes sense. 2. To do this, consider investing your retirement on 2x leverage when young. Only do this for retirement assets that you don't need for 30 years, not funds you might want soon. When you are young you have long enough for the increased volatility to pay off in increased returns. 3. In practise this is tricky to do, but you can use LEAPs, margin trading with platforms like Interactive Brokers which offer it far cheaper than competitors, or buying a house with a large mortgage. 4. Only invest with leverage if you have the stomach for it and won't pull your money out in a downturn. Perhaps try with a small amount of leverage first to see how it feels.

  2. 5 out of 5

    Daniel Frank

    Provocative, revolutionary, innovative, brilliant; this book is a rare 5/5 gem that deserves every superlative I can think of. While the book is has some issues, the core idea is so frickin important it deserves 100 stars. I say this about a lot of books, but I truly wish more people were exposed to this idea (and help create infrastructure for this type of investing). This is not an exaggeration, if you're reading this review, reading this book may make you $100,000's (+++) richer. Provocative, revolutionary, innovative, brilliant; this book is a rare 5/5 gem that deserves every superlative I can think of. While the book is has some issues, the core idea is so frickin important it deserves 100 stars. I say this about a lot of books, but I truly wish more people were exposed to this idea (and help create infrastructure for this type of investing). This is not an exaggeration, if you're reading this review, reading this book may make you $100,000's (+++) richer.

  3. 5 out of 5

    Bouke

    This is a neat little book, with a easy to grasp insight: 1. If you're going to be employed in the future, you will have future savings. You know this for sure. 2. You can see your future savings as a a bond that pays a certain amount per month. You can discount this bond by the prevailing interest rate to get its present value. 3. Your risk tolerance doesn't change during your lifetime. The only thing that changes is your future savings. 4. Therefore, if you want to be 50% exposed to stocks, you w This is a neat little book, with a easy to grasp insight: 1. If you're going to be employed in the future, you will have future savings. You know this for sure. 2. You can see your future savings as a a bond that pays a certain amount per month. You can discount this bond by the prevailing interest rate to get its present value. 3. Your risk tolerance doesn't change during your lifetime. The only thing that changes is your future savings. 4. Therefore, if you want to be 50% exposed to stocks, you will need to borrow money to be properly exposed in your younger years. Investing with leverage when young will lead to higher minimum, maximum, and average returns. 5. The key insight is that investing with leverage early on leads to 'temporal diversification'—you should expose yourself to more market risk early in your life so you can have less risk later on in life. This is less risky than not leveraging when young. Think about it this way: imagine you could invest everything at birth, and pay off the loan over time. If the interest rate is low enough, then this would be the way to go. With a broker like Interactive Brokers, you can borrow at 1.5%, so it's a cheap way to allocate your risk that you would take in your 50s to 60s across your 20s-40s. This would lead to a lower risk with higher returns. Very good insight. The only reason I'm not jumping to borrow money to invest myself, is because it seems daunting and something that can cause quite some damage.

  4. 4 out of 5

    Steve Granger

    The strategies discussed in this book are a bit more involved than I'm looking for and more advanced than I can currently appreciate. Consequently, I'm not the greatest judge of most of the advice offered in this book. However, I did not find the idea of borrowing money with interest to invest very appealing. I'm sure it makes sense in some circles, but seems too high stakes for me. The strategies discussed in this book are a bit more involved than I'm looking for and more advanced than I can currently appreciate. Consequently, I'm not the greatest judge of most of the advice offered in this book. However, I did not find the idea of borrowing money with interest to invest very appealing. I'm sure it makes sense in some circles, but seems too high stakes for me.

  5. 4 out of 5

    Bryan Price

    Outstanding research!

  6. 5 out of 5

    Steve

    Not really a review - just some points. Definately an interesting theory, but I'm still a little skeptical on the practical implementation of using margin. Also it seems like rebalancing the leverage too frequently might impact the overall benefits of leverage. In an endnote, the authors note that their simulations assumed portfolios were rebalanced on a monthly or annual basis. This assumption is key: in rapidly crashing markets this strategy could backfire by increased leverage or no longer reb Not really a review - just some points. Definately an interesting theory, but I'm still a little skeptical on the practical implementation of using margin. Also it seems like rebalancing the leverage too frequently might impact the overall benefits of leverage. In an endnote, the authors note that their simulations assumed portfolios were rebalanced on a monthly or annual basis. This assumption is key: in rapidly crashing markets this strategy could backfire by increased leverage or no longer rebalancing on a monthly basis. If anyone has experience on how IBKR liquidated margin portfolios (especially during the last 2020 whipsaw market) I would be interested in your opinion of this book's strategy. Other leveraged methods may have similar issues. In a crashing market, this may be where the daily leveraged funds perform better, however they would underperform in bull markets. For Canadians, this is where the Smith Manoeuvre (or similar HELOC borrowing) may have some advantages, but that is another subject altogether. It seems the authors diverge from a passive approach by saying to adjust the Samuelson share with CAPE (suggesting you can time the market with PE-10). It is unclear if a high PE-10 is really high when factoring in cheap credit in our current environment; perhaps high PE is a better predictor on a bad time to use leverage due to greater downside risk and incurring a margin call. If you ignore this PE-10 timing strategy, you probably would have done quite well since the book was published; the timing strategy wouldn't have helped for the period post-2009 (you would have been less exposed to equities). This timing strategy also somewhat conflicts with the author's view that equities could be supported at higher valuations. The Figure on p.107 shows the same general 'bond tent' type strategy, increasing stock allocation after the initial years of retirement. It is interesting to see the same conclusion to mitigate sequence of returns risk by using different analysis. Overall this is a very interesting strategy, and the basic Samuelson-share consideration for time diversification makes a lot of sense, and should probably replace the "age minus" rule of thumb for bonds many people recommend. However, using leverage would require more research, and of course require a certain kind of very systematic and educated investor. I would be very interested to see if the authors leveraged lifecycle funds are created for the masses, as this would make their strategy easier to implement for individual investors. I like that this book takes a fairly different viewpoint than most, so while I don't agree with everything written, it is very thought provoking and should be further explored by financial planners.

  7. 4 out of 5

    Russell

    Some interesting ideas about "temporal diversification" instead of just "asset diversification". I'm contraindicated per their guidelines but it's still an interesting thing to think about. I wonder if the authors have made any headway with offering easy target lifecycle funds yet, since they talked about having started to do so in this, which was published now some time ago. Some interesting ideas about "temporal diversification" instead of just "asset diversification". I'm contraindicated per their guidelines but it's still an interesting thing to think about. I wonder if the authors have made any headway with offering easy target lifecycle funds yet, since they talked about having started to do so in this, which was published now some time ago.

  8. 5 out of 5

    Toni Kokkonen

    The book did make me think about stock allocations with regards to leverage in more thought. The book largely advocates to investing with 2:1 leverage when young and paring that down quite late to a 85%ish stock allocation at retirement. According to the authors' studies this amount of leverage with a monthly re-calculated allocation would have never gone broke. Will need to look more into this with how it worked during the covid-dip of March 2020. Also the authors did bring forth very interesti The book did make me think about stock allocations with regards to leverage in more thought. The book largely advocates to investing with 2:1 leverage when young and paring that down quite late to a 85%ish stock allocation at retirement. According to the authors' studies this amount of leverage with a monthly re-calculated allocation would have never gone broke. Will need to look more into this with how it worked during the covid-dip of March 2020. Also the authors did bring forth very interesting views of looking at social security, future income streams from wages and how much like equity one's compensation is linked into the thought processes. This book certainly wouldn't be my first suggestion for personal finance type of literature, but I'd say its more thought out than the average book and a nice addition to read if you're interested in the topic.

  9. 4 out of 5

    Zane

    Overall, the message is powerful—using leveraged investing early in your life is a very powerful and extremely overlooked investment tool. With that said, the fact that they don't do a serious comparison of non-leveraged tax-free investment vs leveraged taxable investment was a bizarre oversight. I still think that an FHA mortgage on some owner-occupied real estate will return much higher cash-on-cash. Overall, the message is powerful—using leveraged investing early in your life is a very powerful and extremely overlooked investment tool. With that said, the fact that they don't do a serious comparison of non-leveraged tax-free investment vs leveraged taxable investment was a bizarre oversight. I still think that an FHA mortgage on some owner-occupied real estate will return much higher cash-on-cash.

  10. 4 out of 5

    Ajay

    The idea of diversifying across time is totally fascinating. Even if you don't implement the ideas in this book (and at this point I won't be), they're worth reading and thinking about. I'm planning on revisiting this book in a weeks after I've spent some time thinking about the ideas contained within it. The idea of diversifying across time is totally fascinating. Even if you don't implement the ideas in this book (and at this point I won't be), they're worth reading and thinking about. I'm planning on revisiting this book in a weeks after I've spent some time thinking about the ideas contained within it.

  11. 4 out of 5

    Richard Zhu

    I didn't need 230 pages of analysis to convince me to get jacked to the tits on leverage... But the point still stands. The book is a deep analysis of the insight that Paul Samuelson had in 1969: You should allocate your investments based on your lifetime wealth, not just your current savings. For the vast majority of young people who expect their stable salaries to continue to the uncertain future, the net present value of their total savings can be much greater than whatever savings they have to I didn't need 230 pages of analysis to convince me to get jacked to the tits on leverage... But the point still stands. The book is a deep analysis of the insight that Paul Samuelson had in 1969: You should allocate your investments based on your lifetime wealth, not just your current savings. For the vast majority of young people who expect their stable salaries to continue to the uncertain future, the net present value of their total savings can be much greater than whatever savings they have today. To "diversify across time" and balance out the natural tendency to have way more invested in the market when you're old, it makes sense to buy stocks on leverage. Of course, don't take this as a wholesale endorsement of risky concentrated and leveraged strategies. And at least for today's era of sky-high valuations, be careful - some eventual contraction in PE ratios from 30-40x to 10-20x, despite 50% growth, can still give your portfolio a haircut of 30%.

  12. 5 out of 5

    Naraen Sridharan

    The book does a good job of making the case of diversifying your investments across time vs just assets. I'm sold that leverage has a place in your investment strategy if you use it wisely and have the necessary guardrails. 3 stars because a long article would sufficed. The book does a good job of making the case of diversifying your investments across time vs just assets. I'm sold that leverage has a place in your investment strategy if you use it wisely and have the necessary guardrails. 3 stars because a long article would sufficed.

  13. 5 out of 5

    Victor

    The idea of diversifying over time as well as assets seems obvious in hindsight. Currently it looks nontrivial to attain optimal leverage in practice, but it is trivial to get much closer to the optimal than traditional strategies. Will be doing more research on this topic, happy to discuss it.

  14. 5 out of 5

    Tibo

    The best financial investment book I have ever read!

  15. 5 out of 5

    Sun Protostellar

    Mathematically compelling argument. I find the writing a bit verbose sometimes, however this book is much easier to read than the original paper.

  16. 4 out of 5

    Alexander Holzmann

    Interesting therory that I might apply.

  17. 4 out of 5

    Michael

    This is a provocative 2010 book on a strategy to increase your retirement savings by using leveraged lifecycle investing. Allow me to explain. One current approach to prepare for retirement is to have a mutual fund that adjusts your asset allocation automatically as you approach a particular retirement date. Typically, you go from a high ratio of stocks to bonds (80:20) to a lower ratio when you retire (40:60). In this similar approach, the authors show using historical data and monte carlo simu This is a provocative 2010 book on a strategy to increase your retirement savings by using leveraged lifecycle investing. Allow me to explain. One current approach to prepare for retirement is to have a mutual fund that adjusts your asset allocation automatically as you approach a particular retirement date. Typically, you go from a high ratio of stocks to bonds (80:20) to a lower ratio when you retire (40:60). In this similar approach, the authors show using historical data and monte carlo simulations that you can have even more retirement savings if you start out at 200% in stocks and then ramp down as you approach retirement. How can you do that? Through using leverage, and there are a variety of ways to do so. The authors make a convincing case, but the devil is in the details in how to implement this strategy. After finishing the book, I came away with the idea that you'll need more financial savvy and interest in stock investing than I currently possess. It would be great if a company like Vanguard implemented their strategy making it much more do-able for the ordinary investor. Also, the book is on the technical side: it reads more like an academic paper than a popular book. But that's partly by necessity in order to justify the authors' claims against their critics.

  18. 4 out of 5

    Hal

    The crux of this investing book is geared toward retirement saving and investing using leverage on equity to multiply earnings over a long horizon to retirement. The authors go to great lengths to prove their theory produces better returns than traditional a methods of passive accumulation and time value. The advice makes some sense with the usual caution of past performance not always guaranteeing future results. It will of course take you a life time to prove it out yourself. And you certainly The crux of this investing book is geared toward retirement saving and investing using leverage on equity to multiply earnings over a long horizon to retirement. The authors go to great lengths to prove their theory produces better returns than traditional a methods of passive accumulation and time value. The advice makes some sense with the usual caution of past performance not always guaranteeing future results. It will of course take you a life time to prove it out yourself. And you certainly have to be comfortable with leveraging your retirement savings. Unless you are quite young and will to follow the format the book though having some merit will not be of much practical use for older investors trying to catch up, which is the vast majority

  19. 5 out of 5

    Philski

    Quick read. The concept is sound: basically treat the money to be made over the rest of your career as a bond (which it virtually is) and you realize that every penny in your investment now as a youngish person (under 50) should be in stocks for a "balanced" portfolio. But young people don't have enough money to be remotely balanced, therefore they should use leverage. Extensive backtesting not only with the S&P500 but the Nikkei and European indices show it outperforms the "standard" investing Quick read. The concept is sound: basically treat the money to be made over the rest of your career as a bond (which it virtually is) and you realize that every penny in your investment now as a youngish person (under 50) should be in stocks for a "balanced" portfolio. But young people don't have enough money to be remotely balanced, therefore they should use leverage. Extensive backtesting not only with the S&P500 but the Nikkei and European indices show it outperforms the "standard" investing advice (stock % of 110-age, rest in bonds) over any 40-year time period during the existance of the S&P. In addition similar returns to traditional investing can be ensured with much lower risk.

  20. 5 out of 5

    Alison

    In all honesty I quit reading this one early. Between the focus on early investors with little capital (we are in our 30s but pouring capital into equities at a good clip) and the myriad counterexamples available of people who have lost all their money plus years of investing to the gamble with leverage, I just was not interested in a method that amplifies short term risk to (potentially) even out long term risk, when other methods exist to mitigate risk and maximize returns.

  21. 4 out of 5

    Zcat

    Carl S recommended for thinking about leveraged investing. Seems like good basic advice, though the book was clearly aimed at a non-FIRE audience.

  22. 4 out of 5

    Martin

    I decided to re-read this book as the strategy described is always an inspiration on how to boost your income and investment growth.

  23. 5 out of 5

    Kamil

  24. 5 out of 5

    NR

  25. 5 out of 5

    Richard

  26. 5 out of 5

    Tyler

  27. 5 out of 5

    Chang Lan

  28. 4 out of 5

    Corinne

  29. 5 out of 5

    Jiasen

  30. 5 out of 5

    Carlo Mazzaferro

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