Dynamics of the composition of household asset portfolios and the life cycle

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Abstract
Panel data from the 1983 and 1986 Surveys of Consumer Finances is used to examine the dynamics of the composition of the portfolios of assets held by households. It analyses the determinants of households' choice of assets. It then considers the extent to which households restructure their asset portfolios between 1983 and 1986 and the impact upon it of changes in socioeconomic characteristics and labour market status in the intervening years, and of access to information about investment opportunities, of attitudes towards risk and illiquidity of investment opportunities, and of life-cycle events. It also investigates the determinants of the extent of diversification, as measured by the number and types of assets held, over the life cycle. The empirical results reported here suggest the following conclusion. Households do indeed set their asset portfolios with the long run in mind; they do not seem to restructure their portfolios as their labour market status changes. However, some restructuring is seen to occur between 1983 and 1986 as non-human wealth changes, and the persistence of the portfolio composition over time varies across assets. Attitudes towards risk and liquidity of investments do affect the restructuring of asset portfolios but access to professional investment advice has a significant effect for few asset categories only.