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Can Sustainable Withdrawal Rates be Enhanced by Trend Following?

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JournalInternational Journal of Finance and Economics
DateAccepted/In press - 13 Sep 2019
DateE-pub ahead of print - 21 Nov 2019
DatePublished (current) - 10 Feb 2021
Number of pages15
Pages (from-to)27-41
Early online date21/11/19
Original languageEnglish


We examine the consequences of alternative popular investment strategies for the decumulation of funds invested for retirement through a defined contribution pension scheme. We examine in detail the viability of specific ‘safe’ withdrawal rates including the ‘4%-rule’ of Bengen (1994). We find two powerful conclusions. First that smoothing the returns on individual assets by simple trend following techniques is a potent tool to enhance withdrawal rates. Second, we show that while diversification across asset classes does lead to higher withdrawal rates than simple equity/bond portfolios, “smoothing” returns in itself is far more powerful a tool for raising withdrawal rates. In fact, smoothing the popular equity/bond portfolios (such as the 60/40 portfolio) is in itself an excellent and simple solution to constructing a retirement portfolio. Alternatively, trend following enables portfolios to contain more risky assets, and the greater upside they offer, for the same level of overall risk compared to standard portfolios.

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© 2019 John Wiley & Sons, Ltd. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details

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