Thread: Finance professor Moshe Milevsky's portfolio

YDNAL - At the simplest level, I think the majority of people agree that you can afford to take more risk with a larger allocation to stocks early in your career. However, they probably believe that is true because stocks are safer in the long run - which is not true. The real reason this strategy makes sense for most people is because they have more bond-like human capital when they are young. It also makes sense because they are, perhaps...

Lbill wrote: But if you do tend to agree with the "commonly accepted" view that younger investors should be mostly in stocks, I believe you are implicitly implementing the Milevsky strategy whether you realize it or not. Lbill, The only strategy I advocate is to use your human capital to save and increase savings rate. This strategy does not encourage anyone to add mortgage notes to your personal residence to invest in the...

Wolkenspiel wrote: If he can stomach the inevitable ups-and-downs, this doesn't appear an unreasonable strategy. Sorry, but this is an unreasonable strategy given the volatility. I pulled down the prices of NASDAQ Composite (^IXIC) from Yahoo! Finance from Feb '71 till Nov '09. Rebalancing monthly with no expense and interest. 1x gets 8.263% 1.5x gets 10.480% 2.5x gets 9.885% Assuming a monthly charge of 0.3% interest on the...

It doesn't have to be this way during the next big bear market - the stock market could take years to recover what it recovered in the the last 6-7 months.

Lbill wrote: According to Milevsky, human capital is the "discounted value of all the salary, wages, and income you will earn over the course of your working life." Which is incalculable. Just as there is no way to estimate the discounted value of all the dividends a stock will pay over the next thirty years. If there were, stock valuation would be an exact science. In both cases, you can certainly try , and in both cases,...

Milevsky actually conceptualizes SS as implicit human capital - an illiquid entitlement to future cash flows that you can't sell or trade in the secondary market, but that you have earned by virtue of your past labor market participation...

More consulting ... Paul

In this case, the need to take equity risk is extremely low. So he can take as much (or little) equity risk he wants. If his stocks go to zero, it won't affect his lifestyle even one little bit. _________________ Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.

Human capital has some value- Lets consider a physician at age 33 who just completed his training and has a net worth of -300K (educational loans.) Lets assume that his income is > 200K/y. In the next 4 yrs he pays off all the debt, but otherwise saves nothing and has a net worth = 0 at age 37. He then takes the best possible DISABILITY INSURANCE . At this point I would believe that a very steady job with a very good income should count...

Palestrina wrote: From the Journal of Financial Planning, "10 Questions with Moshe Milevsky" (November 2009) [I can't post a link]: Moshe Milevsky on Human Capital, Assessing Risk, and the Future of Variable Annuities