Owning stocks isn't always the best option or even a good idea, according to Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages $54 billion. Investors pulled money out of mutual funds that buy U.S. stocks for a fifth straight year in 2011, the longest streak in data going back to 1984, according to the Investment Company Institute in Washington. Last year, an estimated $135 billion was withdrawn, the second-highest annual total after 2008, preliminary data from ICI show.

"I hate words like always or never," Luschini said. "It's always important to consider owning stocks, but in the context of what's important to your particular circumstances, it's not so much a question of whether to own them, but to what degree you should be exposed to them. For a couple who is retired and is more in the wealth preservation mode, perhaps they'd want to dial down their exposure."

Finnish soldiers who scored lowest on the test and still owned stocks usually made the worst asset-allocation decisions, the authors wrote. They purchased too few companies, bought in more volatile industries, and got the worst bang for the buck as measured by the so-called Sharpe ratio, which adjusts return for risk taken. As a result, they were less likely to buy more shares in the future, the researchers said.

Social Policy

The study's authors said the findings have implications for social policy. Avoiding stock investments cuts returns and may widen income gaps, they said. Individuals scoring lowest on the tests who still owned equities earned as much as 33 basis points, or 0.33 percentage point, a year less than the highest scorers. One way governments could promote better savings might be with plans that let people opt out of stocks, like 401(k) plans, as opposed to opting in, said Keloharju.

"If you look at these people over time, people with higher IQ scores and stocks become wealthier and wealthier at a much faster rate than people with lower IQ scores," said Linnainmaa. "It makes them worse off in the long run, even more so than the difference in income."

Financial Education

Hsu of Research Affiliates said an explanation for why draftees with lower test scores owned less stock is that they found it harder and more expensive to receive financial education. Getting people information on investing at a younger age may help limit the disparity, he said.

"The costs to achieve that are certainly higher if someone isn't providing that at an earlier stage in one's education," said Hsu. "If we could provide advice, or provide education, to help reduce the cost of acquiring financial knowledge, that would seem like a good thing."

The paper is part of a broader debate about the role individual characteristics such as affluence and education play in investor actions. In the 1980s, so-called behavioral economists broke away from theorists such as Sharpe, who tended to think of all investors as rational.

Greg Davies, head of behavioral finance at Barclays Wealth in London, said his team tries to gauge clients' risk tolerance with personality profiles and investment strategies that appeal to "emotional needs."

Implications