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Household Portfolio Allocation Over the Life Cycle

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  • James M. Poterba
  • Andrew A. Samwick

Abstract

In this paper, we analyze the relationship between age and portfolio structure for households in the US. We focus on both the probability that households of different ages own particular portfolio assets and the fraction of their net worth allocated to each asset category. We distinguish between age and cohort effects using data from the repeated cross-sections of the Federal Reserve Board's Surveys of Consumer Finances. We present two broad conclusions. First, there are important differences across asset classes in both the age-specific probabilities of asset ownership and in the portfolio shares of different assets at different ages. The notnion that all assets can be treated as identical from the standpoint of analyzing household wealth accumulation is not supported by the data. Institutional factors, asset liquidity, and evolving investor tastes must be recognized in modeling asset demand. These factors could affect analyses of overall household saving as well as the composition of this saving. Second, there are evident differences in the asset ownership probabilities of different birth cohorts. Currently, older households were more likely to hold corporate stock, and less likely to hold tax-exempt bonds, than younger households at any given age. These differences across cohorts are important to recognize when analyzing asset accumulation profiles.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6185.

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Date of creation: Sep 1997
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Publication status: published as Household Portfolio Allocation over the Life Cycle , James M. Poterba, Andrew Samwick. in Aging Issues in the United States and Japan , Ogura, Tachibanaki, and Wise. 2001
Handle: RePEc:nbr:nberwo:6185

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  1. John Y. Campbell & Joao F. Cocco & Francisco J. Gomes & Pascal J. Maenhout, 1999. "Investing Retirement Wealth: A Life-Cycle Model," NBER Working Papers 7029, National Bureau of Economic Research, Inc.
  2. Andrew A. Samwick, 1995. "Tax Shelters and Passive Losses After the Tax Reform Act of 1986," NBER Working Papers 5171, National Bureau of Economic Research, Inc.
  3. John B. Shoven & David A. Wise, 1998. "The Taxation of Pensions: A Shelter Can Become a Trap," NBER Chapters, National Bureau of Economic Research, Inc, in: Frontiers in the Economics of Aging, pages 173-212 National Bureau of Economic Research, Inc.
  4. Steven F. Venti & David A. Wise, 1989. "But They Don't Want to Reduce Housing Equity," NBER Working Papers 2859, National Bureau of Economic Research, Inc.
  5. Canner, Niko & Mankiw, N Gregory & Weil, David N, 1997. "An Asset Allocation Puzzle," American Economic Review, American Economic Association, American Economic Association, vol. 87(1), pages 181-91, March.
  6. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 10(4), pages 91-112, Fall.
  7. Poterba, James M & Venti, Steven F & Wise, David A, 1994. "Targeted Retirement Saving and the Net Worth of Elderly Americans," American Economic Review, American Economic Association, American Economic Association, vol. 84(2), pages 180-85, May.
  8. James M. Poterba & Steven F. Venti, 1998. "Implications of Rising Personal Retirement Saving," NBER Chapters, National Bureau of Economic Research, Inc, in: Frontiers in the Economics of Aging, pages 125-172 National Bureau of Economic Research, Inc.
  9. Andrew A. Samwick & Jonathan Skinner, 1998. "How Will Defined Contribution Pension Plans Affect Retirement Income?," NBER Working Papers 6645, National Bureau of Economic Research, Inc.
  10. Bodie, Zvi & Merton, Robert C. & Samuelson, William F., 1992. "Labor supply flexibility and portfolio choice in a life cycle model," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 16(3-4), pages 427-449.
  11. Miles S. Kimball, 1991. "Standard Risk Aversion," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0099, National Bureau of Economic Research, Inc.
  12. Zvi Bodie & William Samuelson, 1989. "Labor Supply Flexibility and Portfolio Choice," NBER Working Papers 3043, National Bureau of Economic Research, Inc.
  13. Richard T. Curtin & Thomas Juster & James N. Morgan, 1989. "Survey Estimates of Wealth: An Assessment of Quality," NBER Chapters, National Bureau of Economic Research, Inc, in: The Measurement of Saving, Investment, and Wealth, pages 473-552 National Bureau of Economic Research, Inc.
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