A wealth allocation framework for individual investors with multiple objectives

By expanding Markowitz's mean-variance framework to include management of personal risk and allow personal aspirations, this paper constructs a wealth allocation framework for downside wealth protection and upside potential for high-affluence. From the perspective of individual investors, we identify three major risk dimensions and construct risk measures for each risk dimension. Available investment assets are classified- for the three risk dimensions, protective, market and aspirational, based on their risk-return profiles. All risk dimensions are optimized simultaneously through appropriate allocation of total wealth in the investment assets. We mathematically formulate the wealth allocation problem as a nonlinear optimization problem and implement the framework in different market scenarios to test it, along with utilizing market data to check its performance in real world.