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Ibbotson Moshe A.


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Read the Privacy Policy to learn how this information is used. In determining asset allocation, individuals must consider more than the risk—return trade-off of financial assets.

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They must take into account human capital and mortality risk in the earlier life-cycle stages and longevity risk in the later life-cycle stages. The proposed life-cycle model then addresses the transition from the accumulation to the saving phases—in particular, the role if any of immediate payout annuities.

He is founder and former chairman of Ibbotson Associates. Professor Ibbotson conducts research on a broad range of financial topics, including popularity, liquidity, investment returns, mutual funds, international markets, portfolio management, and valuation.

Lifetime Financial Advice: Human Capital, Asset Allocation, and Insurance

He has written numerous books and articles, including Stocks, Bonds, Bills, and Inflation coauthored by Rex Sinquefield , which is updated annually and serves as a standard reference for information and capital market returns. He is a regular contributor to and an editorial board member of both trade and academic journals.


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Professor Ibbotson serves on numerous boards and frequently speaks at universities, conferences, and other forums. We tend to regard wealth as financial assets, large houses, and nice cars accumulated through a life of hard work. Yet that is to view wealth in narrow terms; on the very day we are born we are wealthy in terms of our human capital , or in other words, the present value of all the future earnings that we will generate over our working lives. This needs to be reflected in how we invest during the accumulation phase of investing.

If I were a rich man

As younger people have a long time to go before they will need the money, the advice they receive is often that excess earnings should be invested predominantly in equities. Take for example a university professor and a fin-tech entrepreneur; the former has stable income, linked to inflation and job security; the latter has little income stability and, most likely, a high correlation to the equity markets.

So, if they are both 40 years old and have the same level of financial capital, should they invest in the same way? Intuitively, the answer is no. Human capital should be treated like any other asset class; it has its own risk and return properties and its own correlation with other financial asset classes.

Yale School of Management

Those with more bond-like human capital could well take on more risk and those with more equity-like human capital should, perhaps, take on less risk with their financial capital. Ironically, it is also possible that those who choose steady, stable jobs may have lower tolerance to losses than the entrepreneur, and vice versa. One can see the risk of this scenario. Additionally, two partners may also have different levels of risk in their human capital. Imagine a professor married to an entrepreneur; together they form a balanced portfolio between bonds and equities and their investable portfolio of financial capital should reflect this.

Cash-flow modelling can help those in the accumulation phase of investing to understand the financial impact of changes to their human capital. Owning sufficient life cover to protect the outstanding human capital should be an important part of the discussion.