By the same authors

Reducing sequence risk using trend following and the CAPE ratio

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JournalFinancial analysts journal
DateAccepted/In press - 9 May 2017
DatePublished (current) - 1 Oct 2017
Issue number4
Volume73
Number of pages13
Pages (from-to)91-103
Original languageEnglish

Abstract

The risk of experiencing bad investment outcomes at the wrong tme, or sequence risk, is a poorly understood but crucial aspect of the risk investors face-partcularly those in the decumulaton phase of their savings journey, typically over the period of retrement fnanced by a defned contributon pension scheme. Using US equity return data for 1872-2014, we show how this risk can be signifcantly reduced by applying trend-following investment strategies. We also show that knowing a valuaton rato, such as the cyclically adjusted price-to-earnings (CAPE) rato, at the beginning of a decumulaton period is useful for enhancing sustainable investment income.

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