Human Capital, Asset Allocation, and Life Insurance

Posted: 3 May 2006

See all articles by Peng Chen

Peng Chen

Ibbotson Associates

Roger G. Ibbotson

Yale School of Management; Zebra Capital Management, LLC

Moshe A. Milevsky

York University - Schulich School of Business

Kevin X. Zhu

affiliation not provided to SSRN

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Abstract

Financial planners and advisors increasingly recognize that human capital must be taken into account when building optimal portfolios for individual investors. But human capital is not simply another pre-endowed asset class; it contains a unique mortality risk in the form of the loss of future income and wages in the event of the wage earner's death. Life insurance hedges this mortality risk, so human capital affects both optimal asset allocation and demand for life insurance. Yet, historically, asset allocation and life insurance decisions have been analyzed separately. This article develops a unified framework based on human capital that enables individual investors to make these decisions jointly.

Keywords: Private Wealth Management, Asset Allocation, Client Objectives Constraints and Behavior, Investment Policy Formulation

Suggested Citation

Chen, Peng and Ibbotson, Roger G. and Milevsky, Moshe Arye and Zhu, Kevin X., Human Capital, Asset Allocation, and Life Insurance. Financial Analysts Journal, Vol. 62, No. 1, pp. 97-109, January/February 2006. Available at SSRN: https://ssrn.com/abstract=898651

Peng Chen (Contact Author)

Ibbotson Associates ( email )

225 North Michigan Avenue
Suite 700
Chicago, IL 60601
United States
(312) 616-1620 (Phone)
(312) 616-0404 (Fax)

Roger G. Ibbotson

Yale School of Management ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6021 (Phone)
203-432-6970 (Fax)

Zebra Capital Management, LLC ( email )

2187 Atlantic Street
Stamford, CT 06902
United States
203 701 5900 (Phone)

Moshe Arye Milevsky

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Kevin X. Zhu

affiliation not provided to SSRN ( email )

No Address Available

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