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The conventional wisdom in investing suggests that individuals should reduce their exposure to equities as they age. This strategy is based on the principle that younger investors have a longer time horizon and can afford to take on more risk, while older investors, nearing or in retirement, should focus on preserving capital and minimizing risk. However, the chart below-depicting equity and mutual fund shares as a percentage of financial assets by age group reveals a notable deviation from this traditional approach. Surprisingly, it is the oldest cohort of investors—those aged 70 and above—that maintain the highest levels of equity and mutual fund exposure, with the trend intensifying over time. This data comes from the most recent quarterly Distributional Financial Accounts report from the Fed analyzing household wealth.

The discrepancy in equity market exposure for older and younger age groups can largely be attributed to the dramatic rise in the stock market over the past few decades, which has significantly boosted the wealth of older investors. However, it also underscores a broader trend: younger generations are notably underrepresented in equity markets. This is likely due to a combination of lower net worth, less savings, and perhaps even a more cautious approach to investing. Nevertheless, younger investors, with their longer investment horizon, should ideally have a higher proportion of their financial assets in equities to capitalize on potential long-term growth. We would note, though, that the <40 age group now has a slightly higher share of equity market exposure than the 40-54 age band, and the reading for sub-40 investors has skyrocketed since COVID while the 40-54 age group has merely trended sideways over the last ten years.

In a similar vein, you might expect older investors to have more cash in the form of deposits and money market funds than younger age groups, but it's the sub-40 group that currently has the highest percentage of cash at 20.2% of financial assets. Back in the 90s, older investors carried much higher cash levels than younger investors, but that trend reversed in the years following the Financial Crisis. The sub-40 group has held the highest cash levels of any age cohort for 12+ years now. All things equal, we view it as bullish for the long-term health of the market that younger investors currently have lower equity exposure than most of their peer age groups and higher cash levels. It suggests there's plenty of money out there ready to "Get Invested!" at some point.

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