This paper investigates the gap between portfolio choice theory and observed household behavior by examining how wealth composition influences stock market participation. I develop a participation model where illiquid real assets generate background risk, increasing effective risk aversion under Risk Vulnerability. Empirically, I exploit the panel structure of the Bank of Italy’s Survey on Household Income and Wealth (2006–2022) to test the model's implications through a Correlated Random Effects Probit framework. This methodological approach allows for isolating the effect of wealth composition from unobserved time-invariant household heterogeneity. The results confirm that, conditional on total net wealth and financial human capital, larger holdings of real estate and business equity significantly reduce the probability of stock market participation. I document that this crowding-out effect intensifies at higher wealth levels. This empirical pattern challenges purely liquidity-based explanations and supports the hypothesis that background risk from illiquid assets is a structural determinant of the limited participation puzzle. JEL Classification: G11 , D14 , C23 , D81