lifecycle-allocation

A Python library implementing a practical lifecycle portfolio choice framework inspired by Choi et al. It combines human capital analysis with visual analytics to produce data-driven stock/bond allocation recommendations.

Why This Matters

Most portfolio allocation "rules" are single-variable heuristics: 60/40, 100-minus-age, target-date funds. They ignore the biggest asset most people own, their future earning power. A 30-year-old software engineer with $100k in savings and 35 years of income ahead is in a fundamentally different position than a 30-year-old retiree with the same $100k.

This library takes a balance-sheet view of your finances. Your investable portfolio is only part of your total wealth. Future earnings (human capital) act like a bond-like asset for many workers, and accounting for them changes how much stock risk you should take. However, for tech workers with RSUs, startup founders, and commission-based roles, human capital is partly equity-like; the library's human capital beta parameter captures this distinction. The result is a theoretically grounded, personalized allocation that evolves naturally over your lifecycle, no arbitrary rules required.

Features

• Core allocation engine: Merton-style optimal risky share adjusted for human capital
• Human capital beta: risk-adjust human capital for equity-like jobs (tech RSUs, startups, commission sales)
• 4 income models: flat, constant-growth, age-profile, and CSV-based
• Strategy comparison: benchmark against 60/40, 100-minus-age, and target-date funds
• Visualization suite: balance sheet waterfall, glide paths, sensitivity tornado, heatmaps
• CLI interface: generate full reports from YAML/JSON profiles
• YAML/JSON profiles: declarative investor configuration
• Leverage support: two-tier borrowing rate model with configurable constraints
• Mortality adjustment: survival probability discounting for human capital

Install

pip install lifecycle-allocation

For development:

git clone https://github.com/engineerinvestor/lifecycle-allocation.git
cd lifecycle-allocation
pip install -e ".[dev]"

Requires Python 3.10+.

Quick Start (Python)

from lifecycle_allocation import (
    InvestorProfile,
    MarketAssumptions,
    recommended_stock_share,
    compare_strategies,
)

profile = InvestorProfile(
    age=30,
    retirement_age=67,
    investable_wealth=100_000,
    after_tax_income=70_000,
    risk_tolerance=5,
)
market = MarketAssumptions(mu=0.05, r=0.02, sigma=0.18)

result = recommended_stock_share(profile, market)
print(f"Recommended stock allocation: {result.alpha_recommended:.1%}")
print(f"Human capital: ${result.human_capital:,.0f}")
print(result.explain)

# Compare against heuristic strategies
df = compare_strategies(profile, market)
print(df.to_string(index=False))

See the full quickstart for a detailed walkthrough covering YAML profiles, CLI usage, and chart generation.

Quick Start (CLI)

lifecycle-allocation alloc \
    --profile examples/profiles/young_saver.yaml \
    --out ./output \
    --report

This produces allocation.json, summary.md, and charts in output/charts/.

How It Works

1. Compute a baseline risky share (Merton-style): alpha* = (mu - r) / (gamma * sigma^2)
2. Estimate human capital H as the present value of future earnings + retirement benefits, discounted by survival probability and a term structure
3. Adjust: alpha = alpha* x (1 + (1 - beta_H) x H/W), clamped to [0, 1] (or [0, L_max] with leverage). Here beta_H is the human capital beta (0 = bond-like, 1 = equity-like; default 0)

Young workers with high H/W ratios get higher equity allocations. As you age and accumulate financial wealth, H shrinks relative to W and the allocation naturally declines, producing a lifecycle glide path from first principles rather than arbitrary rules.

Example Output

Archetype	Age	Income	Wealth	H/W Ratio	Recommended Equity
Young saver	25	$70k	$25k	~115x	100%
Mid-career	45	$120k	$500k	~4x	~96%
Near-retirement	60	$150k	$1M	~0.8x	~24%
Tech worker (beta=0.6)	30	$120k	$150k	~27x	~100% (vs ~100% standard)

Values computed from the example YAML profiles with default market assumptions (mu=5%, r=2%, sigma=18%). The tech worker row shows the impact of beta=0.6 on allocation. Results vary with risk tolerance and assumptions.

Tutorial

Explore the interactive tutorial notebook for a guided walkthrough:

Explore the risky human capital tutorial for industry-specific beta adjustments:

Or run locally:

jupyter notebook examples/notebooks/tutorial.ipynb

Documentation

Full documentation is available at engineerinvestor.github.io/lifecycle-allocation.

Research

The human capital beta framework is described in an academic paper:

• Beyond Bond-Like Human Capital: A Beta-Adjusted Framework for Lifecycle Portfolio Choice (full paper)
• Why Your Job Affects How You Should Invest (one-page plain-English explainer)

If you use the human capital beta methodology, please cite the paper (see Citation section below).

Roadmap

Version	Milestone
v0.1	Core allocation engine, CLI, YAML profiles, strategy comparison, charts
v0.2	Human capital beta, industry calibration, risky HC paper and notebook
v0.5	Monte Carlo simulation, CRRA utility evaluation, Social Security modeling
v1.0	Full documentation, tax-aware optimization, couples modeling

Contributing

Contributions are welcome! See CONTRIBUTING.md for development setup, code style, and PR guidelines.

Citation

If you use this library in academic work, please cite both the underlying research and the software:

@techreport{choi2025practical,
  title={Practical Finance: An Approximate Solution to Lifecycle Portfolio Choice},
  author={Choi, James J. and Liu, Canyao and Liu, Pengcheng},
  year={2025},
  institution={National Bureau of Economic Research},
  type={Working Paper},
  number={34166},
  doi={10.3386/w34166},
  url={https://www.nber.org/papers/w34166}
}

@software{engineerinvestor2025lifecycle,
  title={lifecycle-allocation: A Lifecycle Portfolio Choice Framework},
  author={{Engineer Investor}},
  year={2025},
  url={https://github.com/engineerinvestor/lifecycle-allocation},
  version={0.2.0},
  license={MIT}
}

@techreport{engineerinvestor2025risky,
  title={Beyond Bond-Like Human Capital: A Beta-Adjusted Framework for Lifecycle Portfolio Choice},
  author={{Engineer Investor}},
  year={2025},
  type={Working Paper},
  url={https://github.com/engineerinvestor/lifecycle-allocation/blob/main/papers/risky_human_capital.pdf}
}

Disclaimer

This library is for education and research purposes only. It is not investment advice. The authors are not financial advisors. Consult a qualified professional before making investment decisions. Past performance and model outputs do not guarantee future results.

License

MIT