Survey_KMM_2013

Abstract

We develop a life cycle model with rational agents that can replicate empirically-observed household portfolio inertia patterns. In a dynamic consumption and portfolio framework with endogenous labor supply, we account for time costs devoted to portfolio management, this time becomes important when the investor must accumulate job-specific human capital via learning by doing. Our structure for financial decisionmaking costs posits an age-related time efficiency pattern for financial decisionmaking, in keeping with observed empirical evidence. We evaluate the role of financial advisors who, for a fee, help investors manage their financial portfolios. This possibility enables individuals to continue to invest in their job-related human capital.