Saving and portfolio choice

While the motives for accumulating wealth have not changed much over the last century, individuals nowadays face a wide array of options on how to invest their savings in different asset classes. Similar to saving levels, the structures of individual portfolios vary greatly among the population. Households that maintain risky assets such as stocks are in the minority. Researchers have found that the different investment behaviors depend on individual characteristics. This might explain why theoretical models of portfolio choice often fail to predict household behavior. Most of these models suggest that households should hold large amounts of risky assets in their portfolios a clear contradiction to empirical evidence. Thus, the main question is why most households refrain from investing in risky assets, although theoretical models generally support the opposite view. This study tries to find factors that explain the low participation rate and the low share of risky assets in the average household portfolio. With the help of two very innovative datasets, it can be shown that - besides individual characteristics - participation or information costs, and liquidity constraints also have a major influence on portfolio choice. Finally, this study demonstrates that an in-depth analysis of saving and portfolio choice is not only of academic, but also of practical use - primarily in the financial industry. For example, based on the findings of this study, customer relationship management can be applied more effectively.