Desmarais Global Finance Research Centre (DGFRC) Seminar
Jonathan Parker
MIT Sloan School of Management
Simple Allocation Rules and Optimal Portfolio Choice Over the Lifecycle
Date: Friday, September 26, 2025
Time: 10:30-11:45 am
Location: Bronfman Bldg. (1001 Sherbrooke St. West), Room 046
All are cordially invited to attend.
Abstract:
In many areas of economics, relatively simple models developed for insight are used as quantitative guides. We study the accuracy of such simple quantitative guidance in an area where it has been widely adopted — lifecycle portfolio choice among stocks, bonds, and liquid accounts—by developing a machine-learning algorithm to solve for optimal portfolio choice in a calibrated lifecycle model that includes many features of reality modelled only separately in previous work. Both for optimizing households and for households that under-save, the average fully-optimal portfolio at each age conforms well to current simple age-dependent prescriptive rules until shortly before retirement, validating existing analyses. We further show that the consumption-equivalent losses from conditioning portfolio shares on age alone are substantial, around 2 to 3 percent of consumption. Fully-optimal equity shares have substantial heterogeneity, particularly by wealth level, state of the business cycle, and dividend-price ratio, implying substantial gains to further customization in these dimensions.
