A Mean-variance Benchmark for Household Portfolios over the Life Cycle

Claus Munk*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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We embed human capital as an innate, illiquid asset in Markowitz’ one-period mean-variance framework. By solving the Markowitz problem for different values of the ratio of human capital to financial wealth, we emulate life-cycle effects in household portfolio decisions. The portfolio derived with this simple approach matches the optimal portfolio from the much more complicated dynamic life-cycle models. An application illustrates that young households may optimally refrain from stock investments because a house investment combined with a mortgage is more attractive from a pure investment perspective. Another application examines the theoretical support for the observed growth/value tilts in households’ portfolios.
Original languageEnglish
Article number105833
JournalJournal of Banking & Finance
Number of pages17
Publication statusPublished - Jul 2020


  • Life-cycle portfolio decisions
  • Human capital
  • Housing
  • Stock market participation
  • Growth/value tilts

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