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Stocks or Bonds? Depends on how old you are, how healthy you are etc.

  • leonidshtilman
  • Dec 30, 2015
  • 1 min read

Why to buy bonds if stocks are performing better (just take an average for 10 years, 20 years, 30 years ...)??The answer is simple: with the age you become more and more susceptible to volatility. Peaceful retirement is more important than a capital gain.

In more precise formulation: in a pure capitalistic society one's objective is to maximize his Lifespan, which is the minimum of two random variables: BioLifespan and FinLifespan, that isLifespan = min(BioLifespan,FinLifespan) ==> max ... (1) Since both variables in (1) are well defined, it is possible to find certain "equilibrium difference" between more risky equities and (less volatile) cash/bonds; this "equilibrium difference" depends on age, gender, health, etc.The non-trivial part is the existence, value and stability of the equilibrium. In a "complete market", there should be a way, an instrument that , .

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392481

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418839


 
 
 

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