In this paper, we consider the historical real returns of fixed and dynamic allocation portfolios consisting of equities and short term bonds over thirty year time horizons, where fixed real contributions are made to the portfolios annually. In particular, we consider both the scenario where the investor annually rebalances a portfolio to a fixed ratio as well as the scenario where the investor’s annual contribution has a fixed
ratio but the portfolio is never subsequently rebalanced. These results provide investors in the accumulation phase historical data that may provide a useful guide to asset allocation decisions. Of particular interest is that, over the 88 thirty-year time intervals considered, dynamic allocation portfolios had a better overall performance than fixed allocation portfolios, and that both fixed and dynamic allocation portfolios strongly benefited from a heavy equity exposure.
JEL classification numbers: G11; N21; N22
Keywords: portfolio allocation; historical returns; accumulation phase