[abstract] The risk of experiencing bad investment outcomes at the
wrong time, or sequence risk, is a poorly understood but crucial aspect of the
risk investors face—particularly those in the decumulation phase of their
savings journey, typically over the period of retirement financed by a defined
contribution pension scheme. Using US equity return data for 1872–2014, we show
how this risk can be significantly reduced by applying trend-following
investment strategies. We also show that knowing a valuation ratio, such as the
cyclically adjusted price-to-earnings (CAPE ) ratio, at
the beginning of a decumulation period is useful for enhancing sustainable
investment income.
http://www.cfapubs.org/doi/abs/10.2469/faj.v73.n4.5
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