Comment

Abstract

The author comments on the analysis of McNaughton, Piggott, and Purcal that summarized his earlier findings and explains why McNaughton, Piggott, and Purcal took issue with his conclusions. He proposes a “displaced constant-relevant risk aversion” utility function and illustrates that two factors, current wealth and time left to investment horizon, have a bearing on our maximum tolerable equity exposure. He shows that in this framework, it is conceivable that equity tolerance will rise, and not fall, nearing the end of an investment horizon that accumulated enough savings (wealth) to be willing to take equity risk.