THESIS DEFENSE AND PRESENTATION WEDNESDAY, JUNE 24, 1998

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TO USE OR PRINT this presentation click : http://videosliders.com/r/1415 ============================================================== THESIS DEFENSE AND PRESENTATIONWEDNESDAY, JUNE 24, 1998 COMMITTEE MEMBERSROBERT WEAGLEYCRAIG ISRAELSENLOREN NIKOLAI ,INTRODUCTION The household’s decision to consume less of their current income enables them to satisfy the unit’s goals. It is the purpose of this research to gather insight on such similarities in asset allocation patterns and to answer the following research questions. (1)How do economic factors affect the composition of a household’s asset portfolio? (2)How does life cycle stage, as defined by age, affect the distribution of financial and consumer durable assets, as hypothesized by the life-cycle model of asset allocation? ,LITERATURE REVIEW Uhler and Cragg (1971)analyzed how income and nonhuman wealth affect the composition of a family’s asset holdings. Their study examined household portfolios comprised of checking accounts, savings accounts, saving bonds, and stocks. Claycamp (1963)determined that the percentage of households which possess variable-dollar investments (such as stocks, bonds, owner-occupied home, other real estate, and businesses) increased steadily as their asset level increased. Weagley and Gannon (1990)studied the portfolio management of individual investors. Their research investigated several assets by dividing them into 4 groups: housing, financial securities, savings, and retirement investments. Utilized 9 independent variables – total assets, total debt, total income, age, age squared, household size, single/dual earner households, and education. ,PYRAMID OF RISKfor structuring an assets portfolio with respect to risk aversion and expected return. The base of the pyramid is comprised of conservative investments which carry little risk but offer little in way of return. At each successive level the amount of risk rises along with the expected return. The idea is that investors should not progress to the next level of risk until a solid foundation of safer financial investments has been made at each preceding level. LIFE-CYCLE APPROACH – investments move between conservative and speculative according to the households stage in the life-cycle. This allows the portfolio to stay balanced as the family progresses through time. Literature ReviewAsset Management Styles ,Life Cycle Approach ,Methodology Data Source:  1992 Survey of Consumer Finances (SCF) 3906 national respondents 5 imputations 19,530 total observations  Total number of observations utilized 16,440.0 Total number of observations utilized after weighting15,840.4 Independent Variables: Total Assets Total Income Total Debt Age ,Investment Properties Principle Residence Business Property Real Estate Property Depository Accounts Checking Accounts Savings Accounts Money Market Accounts Certificates of Deposit Cash from Brokerage Accounts Government Savings Bonds Other Investments Retirement Accounts Individual Retirement Accounts Pensions Annuities Life Insurance Stocks Corporate Common Stock Stock Funds Bonds Government Bonds State and Municipal Bonds Bond Funds  Methodology – Asset Classifications ,Results – Total Income The average dollar worth of household assets tended to increase with the level of total income, however, there was an overall lack of significant change between the 1st 9 deciles. This result denotes that there is not a significant difference in the amounts held in these assets. It should be noted that the change in mean value was consistently significant for households within decile 9 (income of $60,160 - $86,780) to those within decile 10 (incomes over $86,000). The results which analyze the proportions of total assets held in each asset imply that as the unit’s total income increases the household devotes less of their portfolio to low-risk investments such as checking/savings accounts, as well as vehicle stock. Proportions held in higher risk assets, such as property and stocks, increased; but there was an overall lack of significant change between the adjacen