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

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In determining asset allocation, individuals must consider more than the risk–return trade-off of financial assets. 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 authors show how to integrate these factors into individual investors’ asset allocations through a systematic joint analysis of the life insurance a family needs to protect human capital and how to allocate the family’s financial capital. 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.

About the Author(s)

Roger Ibbotson
Roger G. Ibbotson

Roger G. Ibbotson is Professor in the Practice Emeritus of Finance at Yale School of Management and chairman of Zebra Capital Management, LLC, a global equity investment and hedge fund manager. 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. 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. Professor Ibbotson’s other books include The Equity Risk Premium, Lifetime Financial Advice, and, most recently, Popularity: A Bridge between Classical and Behavioral Finance. He is a regular contributor to and an editorial board member of both trade and academic journals. Professor Ibbotson serves on numerous boards and frequently speaks at universities, conferences, and other forums. He received his bachelor’s degree in mathematics from Purdue University, his MBA from Indiana University, and his PhD from the University of Chicago, where he also taught for more than 10 years and served as executive director of the Center for Research in Security Prices.

Image of Moshe Milevsky
Moshe A. Milevsky
Peng Chen CFA

Peng Chen, CFA, is chief executive officer of Asia (ex-Japan) at Dimensional Fund Advisors, where he is also a member Dimensional's Investment Policy Committee. Previously, he served as president of the global investment management division at Morningstar and as president and chief investment officer at Ibbotson Associates. Dr. Chen is a member of the Financial Analysts Journal editorial board and a contributing editor for the Asia Financial Planning Journal. He has been awarded the Financial Analysts Journal's Graham and Dodd Scroll Award three times. Dr. Chen holds a BS in industrial engineering from the Harbin Institute of Technology and a MS and PhD in consumer economics from The Ohio State University.

Kevin X. Zhu