Jack is young, 30 years old, and has a large amount of human capital relative to his financial capital. Should he allocates more to equities or bonds? Thanks.
Is HC bond-like or stock-like? But as he’s young, risky asset still has higher weight.
* 2011 CFA AM, Q5 C
One of the answer explanation: Finnegan is young and has a large amount of human capital relative to her financial capital so should have a lower allocation to equities. A bit weird…
the question provides the context that she’s equity analyst. the answer wording as in your post implies that the HC is equity-like. so lower.
Depends. If his income is bonds like with low correlation to equity markets, he should invest all of his financial capital in equities. Then reduce them gradually until it reaches approx 50%to 60% of his portfolio at retirement. This is the general rule, but be cautious of case by case circumstances (risk tolerance, inheritance, health, liabilities, …)