### Abstract

Original language | English |
---|---|

Pages (from-to) | 31-42 |

Journal | The Journal of Wealth Management |

Volume | 16 |

Issue number | 3 |

DOIs | |

Publication status | Published - 2013 |

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### Bibliographical note

The full text of this item is not available from the repository.### Keywords

- equity investments
- portfolio management
- risk
- time diversification

### Cite this

**Time diversification frontiers and efficiency frontiers: Implications for long-term portfolio management.** / Niklewski, Jacek; Redhead, Keith.

Research output: Contribution to journal › Article

*The Journal of Wealth Management*, vol. 16, no. 3, pp. 31-42. https://doi.org/10.3905/jwm.2013.16.3.031

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TY - JOUR

T1 - Time diversification frontiers and efficiency frontiers: Implications for long-term portfolio management

AU - Niklewski, Jacek

AU - Redhead, Keith

N1 - The full text of this item is not available from the repository.

PY - 2013

Y1 - 2013

N2 - The article begins with a literature review concerning the argument that the relative risk of equities declines as the time horizon lengthens, as measured by the probability of equity returns outperforming cash and bond returns. Time diversification is one factor that ameliorates the long-run risk of stocks in that it diminishes the probability of loss as the investment horizon extends. The authors then observe that time diversification leads to the standard recommendation of financial advisors—bank deposits and bonds for short- and medium-term investments, and stocks for long-term investments. An increase in the investment horizon reduces the probability of incurring losses from equity investments; in other words, it reduces the likelihood of stocks underperforming an investment with zero real return. Likewise, a long investment horizon reduces the probability of stocks underperforming other investments with lower returns than stocks, such as bank deposits and bonds (although the probability of underperformance is greater than in the case of a zero-return investment). They conclude, however, that tocks become less risky as the investment horizon extends only for a medium-risk portfolio, such as an index fund. It may even be the case that a balanced fund (equities and bonds) has more time diversification than a 100% equity fund.

AB - The article begins with a literature review concerning the argument that the relative risk of equities declines as the time horizon lengthens, as measured by the probability of equity returns outperforming cash and bond returns. Time diversification is one factor that ameliorates the long-run risk of stocks in that it diminishes the probability of loss as the investment horizon extends. The authors then observe that time diversification leads to the standard recommendation of financial advisors—bank deposits and bonds for short- and medium-term investments, and stocks for long-term investments. An increase in the investment horizon reduces the probability of incurring losses from equity investments; in other words, it reduces the likelihood of stocks underperforming an investment with zero real return. Likewise, a long investment horizon reduces the probability of stocks underperforming other investments with lower returns than stocks, such as bank deposits and bonds (although the probability of underperformance is greater than in the case of a zero-return investment). They conclude, however, that tocks become less risky as the investment horizon extends only for a medium-risk portfolio, such as an index fund. It may even be the case that a balanced fund (equities and bonds) has more time diversification than a 100% equity fund.

KW - equity investments

KW - portfolio management

KW - risk

KW - time diversification

U2 - 10.3905/jwm.2013.16.3.031

DO - 10.3905/jwm.2013.16.3.031

M3 - Article

VL - 16

SP - 31

EP - 42

JO - Journal of Wealth Management

JF - Journal of Wealth Management

SN - 1534-7524

IS - 3

ER -