The Effect of Investment Horizons on Risk, Return and End‐of‐Period Wealth for Major Asset Classes in Canada

Abstract

The objective of this paper is to investigate whether the current pructice among financiul planners of recom- mending stocks at an eurly age and progressively mov- ing into cash or bonds as retirement upproaches would be uppropriate. We computed returns, risks and end-of- period wealth distributions of vurious Canadian asset classes at increasing horizons between I957 and 2003, bused on the bootstrapping technique. Results show that investment outcomes at short horizons can be quite d$- ferent from outcomes at longer horizons. Evidence is provided in jiavour of time diversificution, while the cur- renl market practice oj' life cycle investing is not fully supported as stocks continue to exhibit more favourable risk-return payoffs than other asset classes, even at shorter time intervuls