How Do Household Portfolio Shares Vary With Age?

Using pooled cross-sectional data from the Surveys of Consumer Finances, and new panel data from TIAA-CREF, we examine the empirical relationship between age and portfolio choice, focusing on the observed relationship between age and the fraction of wealth held in the stock market. We illustrate and discuss the importance of the well-known identification problem that prevents unrestricted estimation of age, time and cohort effects in longitudinal data. We also document three important features of household portfolio behavior: significant non-stockownership, wide-ranging heterogeneity in allocation choices, and the infrequency of active portfolio allocation changes (almost half of the sample members made no active changes to their portfolio allocations over our nine-year sample period). When estimating portfolio share equations, we consider three separate exclusion restrictions: excluding time effects, cohort effects, and finally age effects. We find no evidence supporting a gradual reduction in portfolio shares with age. There is some tendency for older individuals to shift completely out of the stock market around the time of annuitizations and withdrawals. ∗The Vanguard Group. E-mail to: john [email protected] †Graduate School of Business, Columbia University; and NBER. E-mail to: [email protected]. We are grateful to Joel Dickson, Sarah Holden, Andrew Metrick, Martha Starr-McCluer, Todd Sinai, Mark Warshawsky, and seminar participants at Carnegie-Mellon University, Columbia University, the Federal Reserve Board, New York University, and the University of Chicago for helpful comments and suggestions. This work was performed while Ameriks was a research fellow at the TIAA-CREF Institute; we gratefully acknowledge the assistance of TIAA-CREF staff members in assembling data. Zeldes is grateful for financial support from Columbia Business School. Any errors are the sole responsibility of the authors. All opinions expressed in this document are those of the authors alone.