Macroeconomic Conditions and U.S. Household Wealth: Asset Diversification Insights from the Survey of Consumer Finances

Abstract

Household asset diversification reflects financial goals, investment horizons, and risk tolerance. Various factors influence the composition of U.S. household wealth. This study analyzed data from the Survey of Consumer Finances to establish a relationship between macroeconomic indicators and asset diversification among U.S. households. Household asset diversification was measured using the Herfindahl-Hirschman Index, and linear regression analysis was employed to determine the relationship between asset diversification and various macroeconomic factors. The study findings indicate that officially designated periods of economic recessions and changes in real gross domestic product had little effect on household asset diversification. Conversely, the federal funds rate and consumer price index were positively correlated with diversification, while the unemployment rate was negatively correlated with diversification. Additionally, higher education and income levels consistently correlated with higher portfolio diversification across financial and nonfinancial assets. The study findings indicate that household portfolio modification occurred in response to key variables underlying monetary policy such as inflation and the federal funds rate.