Barry Nalebuff

Ian Ayres

A book based on extensive research teaches investors how to diversify one's retirement portfolio over time with the aim of reducing risk while improving returns. Cowritten by the best-selling author of SuperCrunchers.

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

Lifecycle Investing

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.

A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio (Large Print 16pt)

Bouke van der Bijl

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.

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

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