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Portfolio Choice with Competing Precautionary and Accumulation Goals

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  • Steven Campbell
  • Agostino Capponi
  • Ananya Parashar

Abstract

We study optimal portfolio choice for a household managing two goals at once. A random-deadline precautionary goal, such as a medical emergency, must be paid in full whenever it arrives and is affordable; a fixed-deadline accumulation goal, such as a target retirement lifestyle, may be declined at its deadline. We show that precautionary saving crowds out growth-oriented investment, and deadline pressure is amplified by the competing precautionary claim. We characterize the value function as the unique viscosity solution of an HJB equation, and derive the household's optimal terminal funding rule. The household funds the fixed-deadline goal exactly when the direct benefit at least offsets the resulting drop in the value of keeping the precautionary goal funded. We calibrate the model and find that both flexibility and fungibility are most valuable at intermediate wealth. Committing in advance to fund a goal sacrifices flexibility, while managing each goal in its own account sacrifices fungibility.

Suggested Citation

  • Steven Campbell & Agostino Capponi & Ananya Parashar, 2026. "Portfolio Choice with Competing Precautionary and Accumulation Goals," Papers 2606.03158, arXiv.org, revised Sep 2026.
    • Handle: RePEc:arx:papers:2606.03158
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    References listed on IDEAS

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    Cited by:

    1. Gechun Liang & Moris S. Strub & Yuwei Wang & Zhaojun Yang, 2026. "Optimal Investment to Reach a Financial Goal: A Stochastic Control Framework," Papers 2610.10046, arXiv.org.

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