Meet with PWL Capital: https://pages.pwlcapital.com/en-ca/contact-us?utm_source=content&utm_medium=youtube&utm_campaign=rationalreminder_yt Avoid Online Scams https://pwlcapital.com/stay-safe-online/ Ben Felix or any PWL employee will never reach out to you on social media platforms or WhatsApp to give financial advice. These are scammers trying to commit fraud. What if your biggest investment risk isn’t the stock market—but your own income? In this episode, we are joined by Patrick Adams, a PhD candidate at MIT, for a fascinating deep dive into how income risk, spending commitments, and liquidity constraints reshape what “optimal” investing actually looks like. Drawing on large-scale administrative tax data, Patrick challenges the conventional wisdom that young investors should be heavily—or even fully—invested in equities. We explore why stocks appear safe over long horizons but become risky when real-world constraints force investors to sell at the worst possible times. Patrick explains how high-income households behave during market downturns, why their income risk is closely tied to stock market performance, and how consumption commitments like mortgages and childcare create hidden financial leverage. The conversation also introduces a new life-cycle model that incorporates these frictions—leading to surprisingly conservative optimal equity allocations for working-age investors. This episode reframes asset allocation as a problem of liquidity and risk management, not just return maximization. Timestamps: 0:00:00 Intro 0:08:32 Why stocks are often characterized as relatively safe for long-term investors 0:12:14 Empirically, what typical high income households’ flows into and out of the stock market look like 0:18:56 Patrick describes the financial situation of the households he studied 0:24:53 The relationship between household income and stock market flows 0:26:01 What tends to be happening to a household’s non-financial income when they are taking money out of the stock market 0:34:18 How Patrick's empirical findings compare to the predictions of common savings and consumption models? 0:41:37 What the model says about the optimal equity share for a working age household 0:44:57 How high consumption adjustment costs affects optimal savings behavior 0:53:07 The parameters in his model have the biggest impact on his headline result of the lower optimal equity share for working age households 0:55:18 What would be the key differences driving the differing advice between Patrick's model and those of James Choi and Scott Cederburg 1:01:00 How his work on this affected his own asset allocation decisions 1:04:47 Patrick defines success in his life Links: Patrick Adams – MIT PhD Candidate: https://patrick-adams.com/ Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582. Rational Reminder on Instagram — https://www.instagram.com/rationalreminder/ Rational Reminder on YouTube — https://www.youtube.com/channel/ Benjamin Felix — https://pwlcapital.com/our-team/ Benjamin on X — https://x.com/benjaminwfelix Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/ Cameron Passmore — https://pwlcapital.com/our-team/ Cameron on X — https://x.com/CameronPassmore