Lifecycle investment decisions and labor income risk
Abstract: The optimal proportion of financial wealth placed in stocks versus risk-free bonds changes over an investor's life and is very sensitive to the long-run correlation between stock returns and labor income. If this correlation is assumed to be high, then the optimal proportion of stock is hump-shaped and approximately zero for young agents, in contrast to the claims of financial advisers and most academic models.
File(s): File format is text/html http://www.frbsf.org/publications/economics/letter/2010/el2010-21.html
File(s): File format is application/pdf http://www.frbsf.org/publications/economics/letter/2010/el2010-21.pdf
Provider: Federal Reserve Bank of San Francisco
Part of Series: FRBSF Economic Letter
Publication Date: 2010Order Number: 21