@alta12 @RaviVooda Question:
Discussion two reasons, based on her human capital, why Finnegan's current allocation to equities should be lower.The guideline answers:
1. Finnegan is young and has a large amount of human capital relative to her financial capital.
2. The correlation between Finnegan's income and equity market's performance is high. Thus, her overall allocation to "equity like" capital is extremely high. Investors whose human capital is highly correlated with equity returns should balance human capital risk through a lower allocation to equities in their investment portfolios.My question:
How is point #1 even valid? I thought one may have a large human capital but if it's very fixed income like, then their financial capital should still have higher allocation to equities, shouldn't it ?
But if point #1 is referring to large human capital of equity like then isn't that exactly the same as point #2? That means the guideline answer provided 2 similar reasons from a different angle?
(i realise some other answers for other questions seem to have similar issues - providing similar reasons from different angle).