Investor Numbers: Who's In The Game?

As of 2022, approximately 58% of American households owned stocks, according to a Federal Reserve survey. This is a big shift from 1989, when only about 33% of households owned stocks. The number of Americans investing in the stock market has been steadily increasing, with 61% reporting that they own stock in 2023, according to Gallup's April Economy and Personal Finance survey. This is the highest it has been since 2008, with the number falling after the 2007-2009 recession.

The rise in stock ownership can be attributed to two main trends: the increase in defined-contribution pension programs like 401(k)s, and the recent boom in retail investing during the pandemic with online trading platforms like Robinhood.

Stock ownership by generation

Stock ownership varies across different generations. Baby boomers hold the largest share of stocks, with 54% of stocks valued at $21.58 trillion. This is likely due to two factors: their longer time horizon to accumulate wealth and the increased availability of 401(k) plans. The number of Americans participating in 401(k) programs more than doubled between 1989 and 2000, from 17.3 million to 39.8 million.

Gen Xers and millennials have been increasing their stock holdings as well. Gen Xers own 20.9% of stocks, worth $8.36 trillion, while millennials hold 7.3% of stocks, valued at $2.9 trillion. Millennials' relatively lower stock ownership can be attributed to their younger age and higher costs, such as college tuition and homes. However, as millennials advance in their careers and enter their peak earnings years, their share of stock ownership is expected to rise further.

Gen Z investors, who are currently between 11 and 26 years old, are just beginning to enter the stock market. While their stock ownership is not yet tracked by the Federal Reserve, it is likely to be a small percentage.

In terms of investment behaviour, Gen Z and millennials tend to trade more frequently than older generations, with 70% of these younger investors making trades at least once a month. They also differ in their perception of risk, with Gen Z viewing all investment products as moderately risky, while millennials consider stocks as the least risky and options as the riskiest.

Despite the differences in stock ownership and investment strategies across generations, certain investing principles remain consistent. Across all generations, the potential for long-term gains is the most important factor when considering an investment. Additionally, building a diversified portfolio and investing for the long term are key components of successful investing.

Stock ownership by race

Stock ownership in the US is highly concentrated among the wealthy and white. In 2019, 53% of American families were invested in the stock market, up from 32% in 1989. However, the racial wealth gap persists, with white families being more likely to own stocks than Black and Hispanic families. While 61% of white, non-Hispanic families owned stocks in 2019, only 34% of Black and 24% of Hispanic families did.

The racial disparities in stock ownership are influenced by various factors, including income, wealth, financial literacy, and intergenerational wealth transfer. Higher incomes and net worth increase the likelihood of stock ownership, and wealthier Americans tend to have more money invested in the stock market. Additionally, differences in financial literacy education and a lack of intergenerational wealth transfer within Black and Hispanic communities contribute to lower stock ownership rates among these racial groups.

The median white, non-Hispanic investor owns over three times as much stock as Black or Hispanic stockholders. In 2019, the median stock value held by Black and Hispanic families was $15,000, while it was nearly $51,000 for non-Hispanic white families. This disparity is reflected in the overall wealth distribution, with the typical white family having eight times the wealth of the typical Black family and five times the wealth of the typical Hispanic family.

The racial wealth gap is further exacerbated by differences in retirement account ownership. Participation in retirement accounts, such as individual retirement accounts (IRAs) and employer-sponsored plans, is an important channel for building wealth and financial security in retirement. However, Black and Hispanic families are far less likely to have such retirement accounts. Among middle-aged families, 65% of white families have at least one retirement account, compared to 44% of Black families and 28% of Hispanic families.

The disparities in stock ownership and wealth accumulation have significant implications for the financial well-being of Black and Hispanic communities. Lower stock ownership rates among these groups contribute to slower wealth creation and limit their ability to benefit from the long-term returns of the stock market. Additionally, the lack of participation in retirement accounts suggests that non-White families may be less financially secure in retirement compared to White families.

Mutual funds as the most common investment type

Mutual funds are a popular investment type, especially in the US. They are a type of pooled investment, where money from many investors is combined and used to invest in stocks, bonds, and other securities. Mutual funds are managed by professional fund managers, who decide how to allocate money across different sectors and industries.

In the US, mutual funds are a common way for people to save for retirement. They are often used in employer-sponsored retirement plans, providing a form of "automatic investing" that builds wealth over time. According to the Federal Reserve, in 2022, about 58% of US families held stock, either directly or indirectly through mutual funds and other investment accounts. This is the highest on record, surpassing the previous high of 53% during the dot-com boom.

There are several benefits to investing in mutual funds. Firstly, they offer professional management, with fund managers conducting research and monitoring performance. Secondly, they provide diversification, as mutual funds typically invest in a range of companies and industries, reducing the risk of losing money if a single company fails. Thirdly, mutual funds are affordable, with relatively low initial investment requirements. Finally, mutual funds offer liquidity, allowing investors to redeem their shares at any time for the current net asset value plus any redemption fees.

However, there are also some drawbacks to investing in mutual funds. Mutual funds charge annual fees, expense ratios, or commissions, which reduce overall returns. Additionally, mutual funds may hold a significant portion of their portfolios in cash, which can earn no return and impact overall fund performance. It is important for investors to carefully research and compare different mutual funds, considering factors such as fees, investment objectives, and risk tolerance before making any investment decisions.

Stock ownership and income

Stock ownership varies across the world, with a variety of factors influencing the number of people who invest. These factors include income, age, race, and country of residence.

United States of America

In the United States, stock ownership is strongly correlated with income, age, race, formal education, marital status, and household income. As of May 2024, about 61% of Americans (or 158 million adults) own stock in some form, according to Gallup. This is a 1% increase from 2023 and the highest it has been since 2008. The top 1% of Americans hold 49% of stocks, worth $19.73 trillion, while the bottom 50% hold only 1% of stocks, worth $41 billion.

Stock ownership in the US is not equally distributed among racial groups. White, non-Hispanic families are more likely to own stocks than Black and Hispanic families. In 2019, 61% of white, non-Hispanic families owned stocks, compared to 34% of Black and 24% of Hispanic families. This disparity is influenced by income and wealth inequalities among racial groups.

Age also plays a role in stock ownership rates, with older individuals generally having higher ownership rates. In 2019, families with a head of household aged 45 to 54 had the highest rate of stock ownership at 58%. Those 75 or older had the lowest rate at 47%, while those under 35 had a rate of 48%.

Other Countries

In Australia, close to 100% of the working population is said to be invested in the stock market indirectly through mandatory superannuation contributions. Similarly, in the US, contributions are made to portfolios known as 401-Ks or IRAs. However, these are opt-in programs, and not all jobs offer them.

In Spain, it is estimated that around 20-25% of the population is invested in the stock market through private pensions, funds, stocks, or other means. A commenter on a German forum stated that approximately 13% of Germans invest in the stock market, with higher rates for men (20%) than women (11%). In Morocco, it is estimated that at least 500,000 people out of a population of 40 million invest in the stock market.

While there is no definitive global percentage of stock ownership, it is clear that the distribution of stock ownership varies widely across countries and is influenced by a multitude of factors.

Stock ownership and age

Stock ownership varies by age, with older Americans being more likely to own stocks than younger age groups. This is likely due to older Americans having had more time to build wealth and invest, as well as being in their prime working and earning years.

According to Gallup, 62% of U.S. adults aged 30 to 64 own stocks, compared to 31% of those aged 18 to 29 and 54% of those aged 65 and older. The percentage of 18- to 29-year-olds investing has decreased by 11 points since before the 2008 financial crisis. This could be due to the financial crisis and recession changing younger Americans' views on stocks as an investment, as the collapse in stock values during that time may have left a greater impression than the subsequent bull market.

Adults aged 75 and older tend to invest more and own more stocks, with this age group experiencing the biggest growth in personal wealth over the last several years. The percentage of stock ownership among this age group increased from 20.2% in 2007 to 19.6% in 2016. When including indirect ownership through mutual funds and retirement plans, the share of 75-and-older households owning equities jumped from 40% in 2007 to 49% in 2016.

Baby boomers hold the largest share of stocks, at 54% with a total value of $21.58 trillion. This is likely due to their above-average rates of stock ownership, as many of them had 401(k)s during their prime working years in the economic boom of the 1980s and 1990s.

While younger generations are gradually investing more, with millennials increasing their stock ownership over the last decade and 57% of Gen Z and millennial investors buying stocks, there are still concerns about the low number of younger investors in the market.

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