The Optimal Allocation of Pension Fund Assets

An Individual’s Perspective

Abstract

This study asks which assets in individual should hold indirectly in a pension in order to maximize total portfolio return, where the totaI portfolio consists of assets held directly outside of pensions pIus the pro rata share of pension assets. The answer depends upon whether the individual actively or passively manages the nonpension portion of the total portfolio. Most individuals should place high-yield stocks in the pension fund. But active investors should place low-yield growth stocks in the pension, while very passive investors should place bonds in the pension fund. Rei~tatement of capital gains excbon would usually make corporate bonds the optimal pension asset.