Help please! CFAI Volume 3, SS8, Reading 26, p302 Referring to Exhibit 40, in calculating Overall Asset Allocation, do we ALWAYS allocate 100% of Human Capital to Bonds? If not, then what are the rules? Note - Reading 26 p302 is an example where they only give you FC% vs HC%. - Reading 26 p337 in Q15 which is an example where they give you both FC% vs HC%, FC$ vs HC$
we dont always allocate 100% of HC to bonds. HC is determined by what kind of job we are employed in … if we are employed in say a govt tpe job or in a professorship job, our HC is more or less very stable with very little risk. hence HC has bond like characterstics … its very very safe. so we would invest our FC in riskier securities like stocks. on the contrary, if our labor income is correlated with stock markets like say we are a stock broker, our HC has more equity ike characterstics and it would pay to invest our FC in safer investments like bonds.
Understand the qualitative logic - thank you. But how do we quantify our logic through calculations such as on p302 and p337? What are the rules for such quantitative calculations?