NCPA - National Center for Policy Analysis

Embracing Risk

November 27, 2000

American households have discovered stock-market risk -- and are not at all afraid of it.

According to research by Paul Kasriel of Northern Trust Corporation:

  • Between 1984 and 1999, the share of household financial assets invested in the stock market surged from 27.4 percent to 67.6 percent.
  • That indicates that families were moving from relatively secure fixed-income securities and bank deposits into riskier equities.
  • Households' holdings of federally-insured bank deposits and Treasury securities reached their lowest ebb in the postwar period last year.
  • The riskier assets replacing Treasuries and deposits in household non-equity portfolios are mainly money-market mutual funds and various forms of "securitized" loans -- including government agency debt, such as Fannie Mae and Freddie Mac issues, which are not backed by the full faith and credit of the U.S. government.

Moreover, money-market funds have been shedding their holdings of Treasury securities.

Source: Gene Koretz, "It Used to Be Risk Was Scary," Business Week, November 6, 2000.

 

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