Does International Diversification Increase The Sustainable Withdrawal Rates From Retirement Portfolios?
- Topics:
- Commercial Lending
- Tags:
- Asset Management,
- Stock,
- Portfolio,
- Operational Planning,
- Investment,
- Financial Services,
- Finance,
- Diversification,
- Business Operations,
- Withdrawal
- Source:
- Financial Planning Association
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Overview: The research reported in this article examines the effect of international equity diversification on the sustainability of a range of withdrawal rates from retirement portfolios with varying U.S. and international stock/bond asset allocations. Sustainability of a withdrawal rate is measured by portfolio success rates—that is, the percentage of 1,000 simulated portfolios of a rebalanced asset allocation that completed 15-, 20-, 25- and 30-year payout periods with positive values. Although the return/risk impact of international stocks on U.S. portfolios has changed over the past 30 years, this research suggests that retirees with portfolios composed of 50 percent equities or greater would benefit only modestly in the long run from international diversification. Until recently, the return/risk dominance of internationally diversified portfolios over U.S. security portfolios has been a foregone conclusion in academic and practitioner literature. But recent published research on international diversification questions the risk-reduction effects of international stocks and whether adding foreign stock to U.S.-only portfolios improves portfolio performance on a return/risk basis.
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Format: HTML | Date: Jan 2003 | Pages: 1
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