The Academy of Financial Services 35th Annual Meeting

retirement income, dividends, inveting

There is relatively limited guidance on how to build efficient portfolios for “behavioral” investors, such as retirees, who typically have a strong preference for income. This paper explores this effect using historical data for 16 countries from 1870 to 2019, primarily leveraging the Jordà-Schularick-Taylor Macrohistory database. We find that optimal equity allocations for income-focused investors increase considerably when dividend yields equal or exceed bond yields, especially when considering taxes, even if equity price returns are reduced significantly. Therefore, given the current yield environment, equities may be an attractive substitute for bonds for income-focused investors.