Optimal Portfolio Management for Individual Pension Plans

Abstract

We explore the various arguments for and against the recommendation that younger households should invest a larger share of their pension wealth in risky assets.The ability of young agents to compensate their financial losses by saving more during their career provides the strongest argument in favor of younger people investing more aggressively in the stock market.Meanreversion in stock returns yields another argument.However, the uninsurability of the risky human capital goes into the opposite direction, together with the imperfect knowledge that young investors have about the distribution of asset returns.

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