Vanguard's Life-Cycle Investing Model (VLCM)

March 17, 2021

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A new paper describes the Vanguard Life-Cycle Investing Model (VLCM), a proprietary model for glide-path construction that can assist in the creation of custom investment portfolios for retirement as well as nonretirement goals. Its utility-based framework incorporates behavioral finance considerations such as loss aversion and income shortfall aversion to evaluate risk-return trade-offs of various asset allocation choices and analyzes the probability of success and odds of income sufficiency.

Based on VLCM's framework, we find that risk-aversion levels are the dominant factor behind the broad stock-bond split in the glide path, affecting both glide-path slope and ending allocation.

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