Wharton Pension Research Council Working Papers

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Working Paper

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We investigate the theoretical impact of including two empirically-grounded insights in a dynamic life cycle portfolio choice model. The first is to recognize that, when managing their own financial wealth, investors incur opportunity costs in terms of current and future human capital accumulation, particularly if human capital is acquired via learning by doing. The second is that we incorporate age-varying efficiency patterns in financial decisionmaking. Both enhancements produce inactivity in portfolio adjustment patterns consistent with empirical evidence. We also analyze individuals’ optimal choice between self-managing their wealth versus delegating the task to a financial advisor. Delegation proves most valuable to the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs, as well as delegation, in a life cycle setting.

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Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2013 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


Research support was provided by NIH/NIA Grant # P30 AG12836 and NIH/NICHD Population Research Infrastructure Program R24 HD-044964, the Pension Research Council/Boettner Center for Pensions and Retirement Research at the University of Pennsylvania, and the Metzler Exchange Professor program at the Goethe University of Frankfurt. Without implicating them, we appreciate helpful comments from Santosh Anagol, Alex Gelber, Itay Goldstein, Dana Kiku, Jialun Li, David Musto, Greg Nini, Kent Smetters, Robert Stambaugh, Jeremy Tobacman, Steve Utkus, Jacqueline Wise, and Jessica Wachter. Opinions and any errors are solely those of the authors. © 2013 Kim, Maurer, and Mitchell.

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Date Posted: 26 June 2019