Saving and portfolio choice

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While the motives for accumulating wealth have remained consistent over the last century, individuals today encounter various options for investing their savings across different asset classes. Portfolio structures among households vary significantly, with those holding risky assets like stocks being in the minority. Research indicates that investment behaviors are influenced by individual characteristics, which may explain why theoretical models of portfolio choice often fail to align with actual household behavior. These models typically suggest that households should invest heavily in risky assets, contradicting empirical evidence. This raises the question of why most households avoid investing in risky assets despite theoretical support for such investments. The study explores factors contributing to the low participation rate and minimal share of risky assets in average household portfolios. Utilizing two innovative datasets, it reveals that, in addition to individual traits, participation or information costs and liquidity constraints significantly impact portfolio choices. Ultimately, the analysis of saving and portfolio choice proves beneficial not only academically but also practically, particularly within the financial industry, where findings can enhance customer relationship management strategies.