AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Scott,

I appreciate the information and insight in your newest collaborative book and am not finished reading it. However, I would appreciate a clarification regarding an apparent incongruity:

on p. 240 (top) "The two economists arrived at the same conclusion: we should maintain the same portfolio year in and year out, both before and after retirement."

on p. 246 (bottom) "It doesn't rise, fall, and then rise again, as Samuelson and Merton tell us it should."

Is this a contradiction or am I missing something?

Thanks.

Peter 10Jun08

When Samuelson and Merton examined financial assets alone they concluded that one should hold the same portfolio both before and after retirement. But between page 240 and page 246 we added the element of "human capital"--- the value of our earning power from work. When that is added as a portfolio element, the composition of our financial assets needs to change to reflect changes in the risk of our human capital.

A young worker just starting out, for instance, should actually invest quite conservatively (less equities) because they have more income/career risk. Once established, that worker can, and should, put more money into equities because their human capital risk is lower.

Similarly, someone with a high risk vocation should invest more conservatively than someone in a very secure job.

 Scott