Simulated Comparison of Charles Schwab Recommended Retirement Portfolio Allocation and a Varying Running-Based Allocation Strategy

Traditional retirement accounts have an investment strategy that holds fixed levels of asset allocation based on age. The rigidity causes the portfolio to lose out on potential gains. The investment strategy starts with an aggressive portfolio of largely stocks as a riskier asset and shifts to a smaller allocation toward retirement. This paper proposes a running-based strategy that varies the allocations and outperforms the traditional approach. The running-based strategy makes the risk proportional to the energy output during a running workout. This constitutes an inclusion of fluctuating intervals that function as a protection against overly aggressive portfolio risk during bearish market periods. The two strategies were compared through a simulation over the past 40 years. It was found that both strategies performed similarly while they maintained an aggressive stance. As the conventional strategy reduces risk, the proposed approach was able to capitalize on market gains while still adjusting for potential exposure.