Analysing Asset Allocation Strategies
Recently there have been academic studies that claim that traditional practices regarding changing asset allocation based on age (e.g. allocate 100 - your age to stocks, Target Date Funds) are flat out wrong and even counterproductive. A good paper is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2217406, "The Glidepath Illusion - An International Perspective ssrn-id2217406.pdf". These papers identify a few simple allocation strategies that are the opposite of the traditional ones. They then run a Monte Carlo simulation using each strategy and examine the terminal wealths to compare them. One result of these tests is that the opposite strategies always turn out to be superior to the traditional ones.
That's useful information, but the papers don't even try to identify an optimal approach that an investor can employ. My question is can I use the Monte Carlo simulation of ESPlanner to simulate various retirement strategies to discover one that is effective for me? To do this I need to run trials that vary asset allocation by age and view the distribution of the terminal wealth of each trial. Expected return and standard deviation isn't enough: I need to look at the worst and best trials and at some percentiles (or at least the median) in between. Also I need to disable the consumption smoothing feature so the terminal wealths of the trials are comparable. So, does it make sense to use ESPlanner this way to identify a good allocation strategy?