Draft:Lifecycle Investing

Life Cycle Investing by Dr. Ian Ayres and Dr. Barry Nalebuff published in 2010 by Basic Books is an investment strategy for younger investors starting out investing in their 20s to consider using leverage so that they could invest up to 200% of their portfolio into the stock market.

Ayres and Nalebuff studied under Paul Samuelson. In the book the authors reference "Samuelson Share" in honor of their teacher. Samuelson showed that for a plausible type of risks preference, individuals would want to allocate a constant percentage in the stock market year after year, regardless of what happened to the value of stock. Samuelson's model crucially assumed that you had all your savings in cash at the beginning of your life. The entire books in some ways, just a simple extension of the Samuelson idea.

The concept referred to colloquially as a 'free lunch' in investing is termed time diversification. In their seminal work, 'Lifecycle Investing', Ian Ayres and Barry Nalebuff, renowned figures in the realms of business, law, and economics, have devised methodologies enabling investors to enhance the diversification of their portfolios over time. Proposing the utilization of leverage during early investment stages—an initially contentious notion that drew considerable scrutiny when initially proposed in Forbes—the authors advocate for a strategy that markedly mitigates lifetime risk while concurrently enhancing returns.

Background and History

Lifecyle Investing challenges investors to consider utilizing leverage or investing on Margin (finance). The authors illustrate that investing with leveraged while you're young leads to lower risk. They show that their strategy would have signiciantly increased retirement wealth in the past, even for people who lived through the Great Depression or retired in 2009 right after the 2007–2008 financial crisis.

Positive Reception

Lifecycle Investing received praise from Robert J. Shiller quoted directly from the book ""A most provocative book. The real advantages of time diversification have never been laid out so clearly or with such a program of action."

Moshe Milevsky also praised the book by stating on his quote on the book "This bold book promotes more early equity exposure for the masses, precisely at a time when many practitioners are re-thinking the 'buy and hold stocks for the long run' mantra. Whether you are comfortable with this strategy or not, the book is a must read for anyone who claims to think about their personal finances in a rigorous and logical manner."

Negative Reception

In the Vermont Law Review Volume: 36:373 Frederick E. Vars summed up the book by stating "In sum, the book promises somewhat more than it delivers, but it still delivers a great deal. The book opens new doors in personal finance and is bound to be debated for years to come. That debate gets a jump-start from the book itself. Many of the criticisms offered in this Review can be gleaned from the book. That ultimately is, in addition to the important contribution to investment theory, the book’s second great virtue: highlighting its assumptions for all to evaluate"

Book Contents

2010 Edition

• Introduction: What This Book Expects to Accomplish
• Commentary on the Introduction

1. A Leap of Faith
2. The Plan
3. Historical Performance
4. What If...
5. Starting and Stopping
6. Contraindictions
7. What's Your Share?
8. The Mechanics
9. What if Everyone Did It?

• Endnotes
• Index

Editions

The "First Edition" was published in 2010. ISBN 978-0-465-01829-1

An unabridged audio version of the original edition of LifeCycle Investing was also released in 2010