We examine a decision theoretic model of portfoliochoice in which investors face income risk that is not directlyinsurable.We consider the sensitivity of savings and portfolioallocation rules to different assumptions about utility, thestochastic process for income and asset returns, and market frictions(transactions costs and short-sale constraints).Under CRRA timeadditive utility, habit persistence utility, and for a broad range ofparameterizations, the model predicts that investors wish to borrowand invest all of their savings in stocks. This qualitativeimplication is robust to the introduction of significant transactioncosts in the stock market, and contrasts sharply with portfolioallocation models in which there is no labor income.