Asset Allocation Based on Accumulated Wealth and Future Contributions

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The median accumulated investment balance for investors with 10 to 15 years to retirement falls drastically short of what is needed with some studies suggesting more than half the population in this age group have virtually zero savings. Individuals who find themselves in this predicament and intend to make near certain future contributions should consider the present value of these future contributions as a risk-less income stream into their retirement account. With this in mind, early contributions should generally be directed towards 100% equity or similar riskreturn asset classes. Using a simplified 50/50 stock-bond example, adjusting contributions to account for this unrealized stream of "risk-free" cash into the retirement account will increase expected terminal wealth after 15 years by approximately 10% with minimal increases in end of horizon risk, although within-horizon risk is magnified. For those with significant balances, consideration of future contributions is not as critical.

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