Thanks guys but here is the CFAI answer to above question. The emphasis being the “correlation to the financial markets and Human Capital volatility” - which can be both positive or negative. Most of the answers above assumed Human capital is always “bond like” which is not the case :
An investor’s total wealth consists of two components. One is financial capital and the other is human capital. Human capital is defined as the present value of an investor’s future labor income. Typically, younger investors have far more human capital than financial capital because they have many years to work and they have had few years to save and accumulate financial wealth. Investors should make sure that their total portfolios (i.e., human capital plus financial capital) are properly diversified. An investor’s human capital can be viewed as “stocklike” if both the correlation to the financial markets and its volatility are high. It can be viewed as “bondlike” if both correlation to the financial markets and volatility are low. Initially, for a younger investor, if financial wealth is limited and human capital is “bondlike”, it is appropriate to invest financial wealth predominantly in risky assets. As this investor’s financial wealth increases relative to human capital (i.e., financial wealth increasingly dominates total wealth), a greater portion of financial wealth should be invested in the risk-free asset. For a younger investor, if financial wealth is limited and human capital is “stocklike”, a greater portion of financial wealth should be invested in the risk-free asset. As this investor’s financial wealth increases relative to human capital, a greater portion of financial wealth should be invested in the risky asset. With more financial wealth, balance is achieved by allocating a greater proportion to the asset(s) similar to human capital than would be indicated otherwise.