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Strategic asset allocation for individual investors: with Steve P. Fraser and David R. King We quantify the present value of social security benefits and discuss social security's asset allocation implications. We first discuss why social security wealth should be included in portfolio asset mix decisions. To value social security wealth, we draw parallels between social security benefits and coupons on inflation-indexed treasury bonds. Finally we demonstrate the dramatic effect of social security on strategic asset allocation under several asset mix decision rules. Excluding social security wealth from the asset mix decision causes economically significant measurement errors and sub-optimal portfolios. Published in Financial Services Review, Vol. 9: Issue 4. Download an prepress-version combined paper/tables file This file and this file may convey the essence of the paper better than Figure 2 in the full paper. |
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