Age dependent investment decisions in light of intergenerational altruism

Investment decisions differ depending on the age of the investor in terms of both the quantity and the composition of the investments. First, this age-dependency of investment decisions is due to changes in risk aversion over the life-cycle, i.e. older investors are normally less willing to bear risks compared to younger investors. Second, older individuals encounter less residual capacity in order to compensate for potential losses, i.e. a potential loss might not be neutralized within the years of residual life expectancy. Simultaneously, both channels lead to less risk taking on the financial market of older investors, and correspondingly, to lower returns on average. This paper shows that intergenerational altruism might neutralize the shift of investment decisions towards less risky assets. In particular, in case the next generation can compensate for potential losses which is internalized and recognized by the investor, the shift in investment decisions might be neutralized or even reversed.