The authors incorporated nonfinancial assets—industry-specific human
capital, region-specific housing wealth, and pensions—into a traditional
portfolio optimization and found that the optimal portfolio varies materially
for different compositions of total wealth. In particular, they found that the
optimal equity allocation decreases with age, riskier employment, and riskier
homeownership, whereas it increases with guaranteed pension income. These
results suggest that every portfolio needs to be considered in the context of an
investor’s total wealth.