Investment in Education and Strategic Asset Allocation

76 Pages Posted: 3 Sep 2012

See all articles by Joao Amaro de Matos

Joao Amaro de Matos

Nova School of Business and Economics

Bruno Funchal

FUCAPE Business School; Getulio Vargas Foundation (FGV) - Escola de Pos-Graduacao (EPGE)

Date Written: July 11, 2012


This work analyzes the optimal allocation of assets over the life cycle of an investor who has the option to invest in his education. We characterize the optimal spending rule for education, and compare the optimal asset allocation of such investors with the optimal portfolios of investors with no extra education. In particular, we are able to describe how the criteria for investing in risky assets change through time as investors acquire additional education. Our main findings are as follows. Investors undergoing the educational process tend to invest proportionally more in risky assets during that period than other investors. After the educational period investments in the risky asset usually decrease. In the working period after the investment in education a negative covariance between the working income and the returns of the risky asset induces the proportional investment of educated agents in the risky asset to be larger than the proportional investment of non-educated agents. For positive covariance, as it increases, the proportion of wealth invested in the risky asset decreases for both agents. Finally, in the retirement period the investments of people who invested in education earlier are not distinguishable from those of non-educated.

Keywords: Portfolio Choice, Saving, Investment, Education

JEL Classification: G11, E21, I22

Suggested Citation

Amaro de Matos, Joao and Funchal, Bruno, Investment in Education and Strategic Asset Allocation (July 11, 2012). Midwest Finance Association 2013 Annual Meeting Paper, Available at SSRN: or

Joao Amaro de Matos (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-038


Bruno Funchal

FUCAPE Business School ( email )

Fernando Ferrari Avenue 1358
Vitória, Espirtio Santo 29075-010

Getulio Vargas Foundation (FGV) - Escola de Pos-Graduacao (EPGE) ( email )

R. Dr. Neto de Araujo 320 cj 1307
Rio de Janeiro, Rio de Janeiro 22250-900

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics