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Thoroughly enjoyed the post on MDJ about Lifecycle Investing as an overall portfolio investment strategy.
Link: http://www.milliondollarjourney.com/lifecycle-investing-%E2%80%93-the-benefits-of-diversifying-across-time.htm

The theory behind it speaks to the question posed by its creator, Ian Ayres:
“The point is simple: if diversification across asset classes is so good, why not also seek greater diversification across time periods?”

Would love for all to read through and post replies whether you think this strategy will hold up in the future, since "the study results proved that it resulted in a better retirement for people born every single year since 1848!" The idea to diversify across time is really intriguing as it goes many steps above and beyond just shifting the % bonds vs % stocks within your portfolio as retirement inevitably approaches.
 

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nuke2uk, your name sounds similar to another poster - Lilyukyuk - where do you come up with these names? Are you both from Tuktoyaktuk ?
 

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It seems like a reasonable idea for me for those with excellent job security. I think a large part of the success will depend on the interest rates you can get for the loan. Most 25 year olds will probably have a hard time getting a reasonable interest rate for the loan. The loan will be tax deductible but still will be a large drag on returns.

The other aspect of things is the individual's temperament. Those who are likely to sell in a depressed market could do very bad under this strategy.

The other thing is I'm not sure it makes sense to hold bonds in such a portfolio unless the bond rate significantly exceeds the interest rate on your loan.
 

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The question is how will you implement this. You can DIY if you trust your investing skills, but there is a lot of risk for the typical person. And if you go through an advisor, 1-2% of fees will destroy your returns.
 

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The question is how will you implement this. You can DIY if you trust your investing skills, but there is a lot of risk for the typical person. And if you go through an advisor, 1-2% of fees will destroy your returns.
Agreed, DIY would be assumed here. This strategy seems so risky when the fundamentals are inspected in isolation, however over a 40-year time horizon it apparently pays out in spades if you are consistent and unnerved by market swings.

The final sub-point on the blog post is also very interesting and worth noting to understand the potential impact of portfolio under-performance when you are within 10-15 years of your desired retirement age.

"Many people become more conservative and allocate more to bonds in the last 10-15 years before retirement. This probably means a lower rate of return. Every 1%/year lower return they make after age 50 wipes out 4%/year of the return they made for the first 25 years from age 25-50, since they will own 80% of their investments after age 50."

This opened my eyes.
 

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This is interesting although if using rrsps the room to leverage may not be there. I wonder how this works out in a taxable account, since you lose the tax benefit up front each dollar costs a little more.

I think the biggest issue is then loan risk. I certainly would it want to carry a huge loan, even with the payoff to come, it's stress most don't need when money is tight in their early years.
 

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I think the biggest issue is then loan risk. I certainly would it want to carry a huge loan, even with the payoff to come, it's stress most don't need when money is tight in their early years.
Definitely agree. This strategy isn't for everyone. I'm skeptical myself. However most live comfortably (for better or for worse) with huge amounts of leverage in their 20s/30s when they first purchase a home. 4X, 10X, 20X leverage even. Seems odd in contrast that we naturally baulk at a measly 2X leveraged investment within the broad stock market at the same age. If making the latter choice increases my odds of either a) reaching the same retirement goals but with less risk, or b) surpassing retirement goals with the same risk, then I'd keen to investigate further.
 
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