By Jean Chatzky
FORTUNE -- The most frightening billboard I saw in recent months ran along the Westside Highway in Manhattan. From the good folks at Prudential, it read: The First Person To Live To 150 Is Alive Today, with the subhead, Plan For A Longer Retirement. A few weeks later, our sister publication, Time Magazine, followed in tandem, asking the question on its cover: Can Google Solve Death?
We get it. From a financial (as well as, of course, a medical) perspective, longevity is very likely the issue of the century. What can you do about that? Saving more never hurts, the folks behind America Saves Week, which happens to be now, nudge us to remember on an annual basis. (If you need help saving more, check out the resources here.)
But, the longer your time horizon, the more you may also want to think about socking away in stocks. A new paper from Morningstar Head of Retirement Research David Blanchett along with Michael Finke of Texas Tech University and Wade Pfau of The American College looks at the issue of time diversification, defined as "the anomaly where equities become less risky longer investment periods." The researchers look at 113 years of data from 20 countries and found that, yes, the longer your time horizon, the more you may want to allocate your investments to equities.
How much more? A moderate investor, who might want 45% of his portfolio in stocks with a one-year time horizon, could increase that allocation to above 80% if he had 20 years to go. An aggressive investor could go from 70% to almost all in. Looking backward, Blanchett explains, that by doing so investors could have increased their returns without upping the risk they were taking on. The obvious next question, he acknowledges, is will this continue in the future? No one knows, of course. "But looking at different time periods, we can see that this benefit has been increasing – not decreasing – over time." That said, investing based on this research means doing a couple of things.
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BlackRock's CEO says that the U.S. may need to make retirement savings mandatory.
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