How long should stock holding periods be?
This is a balance of risk and reward. Longer stock holding periods will require a longer income ladder and therefore a more conservative allocation. Shorter stock holding periods will require a shorter income ladder and therefore allow a more aggressive allocation. One of the advantages of the Defined Withdrawals strategy is that the asset allocation is driven by a quantitative measure of risk, for example one can easily understand the difference between 10 years of guaranteed income vs. 5 years of guaranteed income. This is not the case with traditional qualitative measures of risk tolerance. We prefer stock holding periods in the range of 8 to 12 years because these intervals have typically provided opportune times to sell.
