Journal Article

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.

Keywords: Investments; Income;

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: FRBSF Economic Letter

Publication Date: 2010

Order Number: 21