Optimal Portfolios for Regular Investments

Abstract

This study fills a gap in the time diversification literature by determining optimal allocations for regular monthly investments that minimize downside deviations below different real targets for various investment periods. The results show that the stock allocations of optimal portfolios increase with the target return as well as with the investment period. For a high target return over a long period, the optimal portfolio is entirely invested in stocks. However, unlike optimal portfolios for one-time investments, the stock allocations of optimal portfolios for regular investments over long periods consist mainly of large company stocks rather than small company stocks.

TOPICS: Portfolio construction, long-term/retirement investing, risk management