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 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 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.
How Do Household Portfolio Shares Vary with Age?