Thus, our total wealth is made up of two parts: our human capital and our financial capital. Recognizing this simple dichotomy dramatically broadens how we analyze financial activities. We desire to create a diversified overall portfolio at the appropriate level of risk. Because human capital is usually relatively low risk (compared with common stocks), we generally want to have a substantial amount of equities in our financial portfolio early in our careers because financial wealth makes up so little of our total wealth (human capital plus financial capital). Over our lifetimes, our mix of human capital and financial capital changes. In particular, financial capital becomes more dominant as.
