Strategic asset allocation for individual investors

the impact of the present value of Social Security benefits

Authors

  • Steve P. Fraser Doctoral pre-candidate, Department of Finance, College of Business Administration, University of South Florida, Tampa, FL, USA
  • William W. Jennings Assistant Professor of Finance, HQ USAFA/DFM, U.S. Air Force Academy, Academy, CO 80840, USA
  • David R. King Doctoral pre-candidate, Department of Strategy, College of Business, Indiana University, Bloomington, IA, USA

DOI:

https://doi.org/10.1016/S1057-0810(01)00072-5

Keywords:

Valuation, Mean-variance optimization, Portfolio choice, Social security

Abstract

This paper demonstrates the dramatic effect of Social Security wealth on individuals’ asset allocation. We first discuss why Social Security wealth should be included in portfolio asset-mix decisions. We then draw parallels between Social Security benefits and inflation-indexed treasury bonds to help quantify the present value of Social Security benefits. Finally, we show the portfolio impact of including Social Security wealth under several asset-mix decision rules. Excluding Social Security wealth from the asset mix decision results in suboptimal portfolios. Including Social Security wealth provides an incentive for including more stock in the asset mix. © 2001 Elsevier Science Inc. All rights reserved.

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Published

2000-12-30

How to Cite

Fraser, S. P., Jennings, W. W., & King, D. R. (2000). Strategic asset allocation for individual investors: the impact of the present value of Social Security benefits. Financial Services Review, 9(4), 295–326. https://doi.org/10.1016/S1057-0810(01)00072-5

Issue

Vol. 9 No. 4 (2000): Financial Services Review

Section

New Original Submission

License

Copyright (c) 2000 Elsevier Science Inc.

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