Bridging the Gap: THE BUSINESS CASE FOR FINANCIAL CAPABILITY
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The tradi- tional mean–variance framework’s concentration on diversifying financial assets is a reasonable goal for many institutional investors, but it is not a realistic framework for individual investors who are working and saving for retirement. In fact, this factor is one of the main observations made by Markowitz (1990). From a broad perspective, an investor’s total wealth consists of two parts. One is readily tradable financial assets; the other is human capital. Human capital is defined as the present value of an investor’s future labor income. From the economic perspective, labor income can be viewed as a dividend on the investor’s human capital. Although human capital is not readily...
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