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← Human Capital and the Life Cycle
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Question
Why does the life-cycle investing model suggest that young investors should hold equity-heavy financial portfolios?
1
Regulatory rules in most countries require investors under 40 to hold primarily equities.
2
Young investors have large bond-like human capital (future salary), so their financial portfolio should be weighted toward equities to balance their total wealth allocation.
3
Young investors have less experience and should learn investing with higher-return assets before shifting to bonds.
4
Equities are safer than bonds over short time horizons, making them more appropriate for young investors.
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