Abstract

The authors incorporated nonfinancial assets—industry-specific human capital, region-specific housing wealth, and pensions—into a traditional portfolio optimization and found that the optimal portfolio varies materially for different compositions of total wealth. In particular, they found that the optimal equity allocation decreases with age, riskier employment, and riskier homeownership, whereas it increases with guaranteed pension income. These results suggest that every portfolio needs to be considered in the context of an investor’s total wealth.

About the Author(s)

David M. Blanchett PhD, CFP, CFA

David Blanchett, CFP, CFA, is the head of retirement research for Morningstar Investment Management. He provides research support for the group’s consulting and investment management activities, primarily in the areas of financial planning, tax planning, annuities, and retirement plans. Mr. Blanchett also serves as chairman of the advice methodologies investment subcommittee. He holds a bachelor's degree in finance and economics from the University of Kentucky, a master's degree in financial services from The American College, and a master's degree in business administration from the University of Chicago Booth School of Business.

Philip U. Straehl

Philip U. Straehl is head of capital markets and asset allocation at Morningstar Investment Management LLC, Chicago.

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