Reducing sequence risk using trend following investment strategies and the CAPE

Andrew Clare, James Seaton, Peter Smith and Stephen Thomas

Discussion Papers from Department of Economics, University of York

Abstract: Sequence risk is a poorly understood, but crucial aspect of the risk faced by many investors. Using US equity data from 1872-2015 we apply the concept of Perfect Withdrawal Rates to show how this risk can be significantly reduced by applying simple, trend following investment strategies. We also show that knowing the CAPE ratio at the beginning of a decumulation period is useful for predicting and enhancing the sustainable withdrawal rate.

Keywords: Sequence Risk; Perfect Withdrawal Rate; Decumulation; Trend-Following; CAPE (search for similar items in EconPapers)
JEL-codes: G10 G11 G22 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-ets and nep-rmg
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