Human Capital dilemma something, dilemma, capital, wealth

Muddahudda

why when human capital is stocklike more financial wealth calls for more aggressive portfolios? Am i missing something?

liangfeng

Yea I read that section or paragraph at the bottom the page and I am confused as well lol

Valores

If this isnt an errate then my only guess is that there is an assumption about the stage of life u r in. The paragraph states "more financial wealth also indicates more conservative portfolios when human capital is bondlike". Which to me would suggest someone who has a lot of job security and that would normally happen at a later stage in ur life at which point your ability to take risks declines. Thus if your human capital is stocklike you are likely to be younger (excluding those who get tenure in their 20s) and if you have a lot of financial wealth when your young you hav a greater ability to take on more risks.

I'm kinda clutching at straws here so I think it's probably an error in the text.

PalacioHill

Those are 2 different indicators

1) HC is stock like --> decreases risk tolerance
2) Huge wealth --> increases risk tolerance
--> Overall: depends on the level of 2)

If wealth if really huge it outrumps the income (look for clues "would not nee to work anymore" or simply 50k per year salary against 2m income a.t. from portfolio)

Also, stage of life is an indicator like the 2 above. While you generally invest in less risky securities as you grow older, with huge wealth you are still able to take on more risk.

bodhisattva

hmm. Yea that's confusing.

check out pg 330 number 3

Zestt

Ok that makes sense. I think that model is strictly talking about life insurance

Analti_Calte

That chapter is related to "Life Insurance" model but the particular segment i'm referring to related to general concepts of Human capital

canadiananalyst

That's I'm talking about. Either CFA text is erring (I checked Errata, this is not marked as error) or i'm missing some important point...