NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Time is Money: Life Cycle Rational Inertia and Delegation of Investment Management

Hugh Hoikwang Kim, Raimond Maurer, Olivia S. Mitchell

NBER Working Paper No. 19732
Issued in December 2013
NBER Program(s):   AG   LS

This paper incorporates two empirically-grounded insights into a dynamic life cycle portfolio choice model: the fact that investors forego the opportunity to accumulate job-specific skills when they spend time managing their own money, and the observation that efficiency in financial decision making varies with age. Our calibrated model demonstrates that both factors generate sensible portfolio inactivity patterns consistent with empirical evidence. We also analyze how people optimally choose between actively managing their assets versus delegating the task to financial advisors. Delegation proves valuable to both the young and the old. Our calibrated model quantifies welfare gains from including investment time and money costs as well as delegation in a life cycle setting.

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This paper was revised on March 25, 2015

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Document Object Identifier (DOI): 10.3386/w19732

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