Actually, not the very young but, say, those who have just got a job. That is who Ian Ayres and Barry Nalebuff are targeting in their new book, Lifecycle Investing. They want to convince people that it is a good idea to have more of their savings in riskier assets such as stocks and, in fact, they should do this through margin lending. It is a bold claim given what we just went through but Ayres and Nalebuff back their arguments up with clear theory and lots of evidence. Put simply, time is on your side and so restricting your portfolio to your earned wealth makes no sense. Of course, in one sense this doesn’t mean borrowing to buy stock rather paying down home mortgages at a slower rate. Here is Ayres explaining the approach.
Now I won’t go into details although I find their argument fairly convincing. But I do want to point out that the Australian government may have stumbled upon this in a forced way through superannuation. Not only does that increase likely savings of younger people but it also does so in a way that forces them to diversify away from cash and property. It is like the entire country joined the Ayres-Nalebuff plan and I wonder if this isn’t a big driver of why we find ourselves in such a good economic position today. This is certainly something I hope people might study one day.
On another score, if you are thinking of following the Ayres-Nalebuff approach, read this NYT article about some social websites that might help you along the way.