One difficulty of this life-cycle investment strategy is that individuals may find it a daunting task to change the asset allocation as they age (as well as to anticipate trends in the prices of risky assets). A solution is provided by accumulation schemes that automatically adjust risk as an investor ages (“life-cycle funds”).
This kind of solution has been increasingly adopted for DC pension plans in a number of countries. Financial markets also offer strategies that drastically reduce the exposure to investment risk. One possibility is to restrict portfolio choices to fixed-income instruments, especially index-linked bonds, or to use options.