Ibbotson Patents 'Human Capital' Asset Allocation Concept
An Ibbotson news release said the portfolio construction method balances an investor’s financial capital and human capital. The company said it defines financial capital as an investor’s current savings while human capital is an investor’s future potential savings. That future savings, the news release said, “is often the single largest asset an investor has.”
According to the announcement, younger investors have far more human capital than older investors because they have a longer time in which to earn and save.
The company said younger investors should hold their
financial capital in more aggressive investments to balance
out that large allocation to human capital. Older
investors, on the other hand, have less human capital and
should guard their financial capital with a larger
concentration in conservative investments, Ibbotson said.
The company said the human capital concept was developed by
Peng Chen, president and chief investment officer of
Ibbotson Associates; Roger Ibbotson, founder of Ibbotson
Associates and professor of finance at Yale School of
Management; and Mike Henkel, former president of Ibbotson
Associates.
“Andre Agassi and I are the same age and we may even
have the same risk tolerance, but that doesn’t necessarily
mean we should have the same asset allocation,” Chen
said. “An investor’s tolerance for risk and age should
not be the only factors that determine asset allocation in
a portfolio. One’s current financial situation and future
earning ability—financial capital and human capital,
respectively—play a large role.”
Ibbotson said the newest patent is its second for its asset
allocation techniques.