Investing over the Life Cycle with Long-run Labor Income Risk
Throughout life, people make saving and spending
decisions. Moreover, they choose how to allocate their
savings among assets that have predictable but low
returns, like bonds, and assets that are riskier but could
yield higher returns, like stocks. Choices that are made
when individuals are relatively young will have large
implications for their standard of living in retirement,
when much of their income is likely to come from
savings. Private pension plans and the Social Security
system face similar decisions about how best to invest
assets for their clients.
