Stocks, Bonds, and the Investment Horizon: Decision-Making for the Long Run

About a century ago, life expectancy in the world was roughly 40 years, hence saving for retirement was not an economic issue. Nowadays, in some countries, the life expectancy is about 80 years, hence one should invest and save for consumption for many years after retirement. This increase in life expectancy, combined with the negative real interest rate in many years during the last two decades, posit a sharp dilemma for investors: should they invest in risky stocks or in relatively safe bonds with low, or even negative real rate of return? Should investors with a relatively short horizon invest differently from those who invest for a relatively long horizon?One of the issues that researchers as well as practitioners face is whether stocks become more attractive than bonds as the investment horizon increases. Those who say 'yes' advocate the well-known investment strategy 'stocks for the long run'. This book focuses on the effect of the investment horizon on the optimal investment in two competing frameworks: the Mean-Variance and Stochastic Dominance. We discuss the contradictory results obtained with these two paradigms.