Assessing the relationship between health and household portfolio allocation

This paper surveys the literature on the relationship between health and household portfolio allocation and provides updated empirical analysis based on recent data. Prior research finds robust evidence for cross-sectional correlations between measures of health status and portfolio decisions, but establishing the causal pathways and underlying mechanisms has proven more difficult and complex. Analysis from the most recently available 2016 and 2018 waves of the Health and Retirement Study yields results that are consistent with existing literature. Households with worse self-reported health have a lower probability of holding various types of financial assets and invest a higher share of their portfolios in safe assets, relative to other asset categories. However, there is only weak evidence that new health shocks to a household change portfolio holdings. The paper concludes with a discussion of the implications of this research and directions for future work.