I am getting confused here. So my human capital is equity like (I work in Finance), does it mean my financial capital should be in fixed income securities? As per general rule- at younger age, most of your portfolio should be allocated to equities. Any insight?
human capital is similar to a fixed income bond. you recieve cheque instead of coupon.
a paycheque that is.
I think the CFAI readings contradict themselves. LOS 19©: (1) Younger investors should invest aggressively. Human capital often investor’s largest single asset. (2) Young man in workforce may have more equity-like human-capital…will fluctuate w/mkt, indus. performance, etc… So, there’s a contradiction: (1) implies you invest in equities, all-in. (2) implies fixed-income if your human capital’s equity-like. For yourself, you work in Finance… industry’s highly correlated with the portfolio returns, so would invest more in fixed-income. I think where this would be tested is exactly the example you give… see if we understand the differentiation for a young person working in a highly correlated industry.
whystudy, that is not true. Human Capital is essentially describing the future earnings stream, whether from actual employment or things like pension payments. It is true some folks will see very stable earnings in the future because of their career, but others will have volatile earnings that are no where near FI like. As a general rule if your Human Capital is equity like (in your example you work in finance), you might be wise to balance that out with a Financial Capital that is more FI tilted. Similarly if you were a tenured college professor with very FI like human capital you could tilt your financial capital portfolio more towards equity.
It is not a contradiction, rather guideline. If you’re young, but working in career with equitiy like human capital earning stream you would want less equity exposure than your cohort who’s hc earning stream is not as equity like. You can do the same thing with a person young vs. older who both have equity like HC.
Neveruse_95%_everagain Wrote: ------------------------------------------------------- > I think the CFAI readings contradict themselves. > LOS 19©: > > (1) Younger investors should invest aggressively. > Human capital often investor’s largest single > asset. > (2) Young man in workforce may have more > equity-like human-capital…will fluctuate w/mkt, > indus. performance, etc… > > So, there’s a contradiction: > (1) implies you invest in equities, all-in. > (2) implies fixed-income if your human capital’s > equity-like. For yourself, you work in Finance… > industry’s highly correlated with the portfolio > returns, so would invest more in fixed-income. > > I think where this would be tested is exactly the > example you give… see if we understand the > differentiation for a young person working in a > highly correlated industry. not exactly right. human capital can be thought of just the propensity to make a paycheque as you are young. if the finance market is bad you can always work in an other industry that will also provide you with a steady cashflow or human capital. thus, you have human capital when you are young you are just thinking one dimension, cause in reality, if all of a sudden the financial sector no longer exist, you will obviously look for work in another industry, very much like many sectors that has been outsourced to other countries.
Not sure I fully agree, but see your point. “Paycheque”… where are you? Sorry, I assume everyone taking this is a drone working in Manhattan like me…
sponge "As a general rule if your Human Capital is equity like (in your example you work in finance), you might be wise to balance that out with a Financial Capital that is more FI tilted. " But I am also young and as per general rule, isn’t my portfolio should be on equity heavy side. Which basically shows my human capital is equity like and my financial capital is also equity like, no?
Neveruse_95%_everagain Wrote: ------------------------------------------------------- > Not sure I fully agree, but see your point. > > “Paycheque”… where are you? Sorry, I assume > everyone taking this is a drone working in > Manhattan like me… even investment bankers gets paid 60K base. but sorry, i work 9-5 and get a regular paycheck as I am at a plan sponsor.
OK, just curious… wasn’t trying to put you on the spot. Think it’s remarkable that we’re all working together, from different parts of the globe…
human capital equity like -> hedge with bond like financial capital -> no life insurance
pupdawg82 Wrote: ------------------------------------------------------- > sponge > > "As a general rule if your Human Capital is equity > like (in your example you work in finance), you > might be wise to balance that out with a Financial > Capital that is more FI tilted. " > > But I am also young and as per general rule, isn’t > my portfolio should be on equity heavy side. Which > basically shows my human capital is equity like > and my financial capital is also equity like, no? It is a relative thing…so you might not be as equity heavy as someone your same age that doesn’t work in such an equity like career.
shanghaiexpo Wrote: ------------------------------------------------------- > human capital equity like -> hedge with bond like > financial capital -> no life insurance I really hope you answer all your written answer in AM this way. I have no idea what the hell you are saying. But your name gives me a good indication of why you write the way you do.
He’s saying if your human capital is equity like you would hedge/balance it by tilting your financial capital portfolio more towards FI than you otherwise would. As Human Capital becomes more equity like you need for life insurance decreases because of a higher discount rate.
whystudy Wrote: ------------------------------------------------------- > shanghaiexpo Wrote: > -------------------------------------------------- > ----- > > human capital equity like -> hedge with bond > like > > financial capital -> no life insurance > > > I really hope you answer all your written answer > in AM this way. I have no idea what the hell you > are saying. But your name gives me a good > indication of why you write the way you do. That’s racist!
That’s a good way of putting it. Now lets park this thread and get on with our work. Sponge_Bob_CFA Wrote: ------------------------------------------------------- > He’s saying if your human capital is equity like > you would hedge/balance it by tilting your > financial capital portfolio more towards FI than > you otherwise would. As Human Capital becomes > more equity like you need for life insurance > decreases because of a higher discount rate.
thanks guys…trying to be brief…preping for the exam, although my morning practices are not as concise yet. whystudy, i just live here, and I dont even know if what I wrote would get me any points