The Extended Portfolio in Private Wealth Management

This paper was published in the Summer 2008 issue of the Journal of Wealth Management.

ABSTRACT: The authors assert that a private wealth manager should manage an individual's extended portfolio that contains financial assets like stocks and bonds along with non-financial assets such as human capital and future benefits from Social Security and defined-benefit pension plans. The optimal allocation of an individual's financial portfolio must recognize that it is but one part of an extended portfolio. If human capital is bond-like then, when human capital is substantially larger than financial assets, an individual's financial portfolio should be heavily allocated to stocks. Similarly, benefits from a defined-benefit pension plan or a fixed payout annuity are essentially “bonds” in an extended portfolio. Everything else the same, individuals with such bond-like extended portfolio assets should allocate a larger portion of their financial portfolios to stocks. The article examines these and other investment implications of this extended portfolio framework.
© William W. Jennings 1999-2016