Author Topic: Americans' stock ownership at a record low  (Read 6640 times)

FireLane

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Americans' stock ownership at a record low
« on: April 21, 2016, 08:02:44 PM »
Every time I read a story about the massive inflows of money into index funds, I worry that it's too late for us newcomers to FIRE. What will happen if everyone else catches on to this idea? What if millions of people pursuing the dream of early retirement push stocks up to such high valuations that the 4% rule won't be sustainable going forward?

But then I see surveys like this from Gallup:

http://www.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx

Quote
With the Dow Jones industrial average near its record high, slightly more than half of Americans (52%) say they currently have money in the stock market, matching the lowest ownership rate in Gallup's 19-year trend.

This is down from about 65% in 2007. A lot of small investors fled the market in the Great Recession and, naturally, most of them haven't come back. Herd behavior is an eternal constant, it seems, and that makes me think that those of us who stay the course may be in good shape after all. I'm sure that most of those people are going to get back into the market eventually, when their memories of the crash fade. Hopefully, that will happen just as I'm about to retire, and their demand will push up the value of my investments!

TheGrimSqueaker

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Re: Americans' stock ownership at a record low
« Reply #1 on: April 21, 2016, 10:53:00 PM »
Supposing that the number of available shares hasn't gone down, these numbers indicate that stocks (and the opportunity they represent) are being concentrated in the hands of fewer people. That fact, plus the fact the indexes keep rising, suggest to me that stock owners are getting wealthier over time not just because the value of their investments is increasing but because they're acquiring more of the same.

Overall, the set of people who own or control large amounts of stock is also the set of people whose interests are best represented and advanced by government.

I'd say, let's keep buying. Our side has the bigger hammer.

bobechs

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Re: Americans' stock ownership at a record low
« Reply #2 on: April 22, 2016, 12:19:17 AM »
Also, with forty percent of millenials (ages 18-32) who are not enrolled in school earning less than ten thousand dollars a year, you are not going to see a flood of young workers choosing to, or even being capable of diverting some of their income into stocks or other longer-term vehicles.

It's all part of the economic Mexification of America.

zephyr911

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Re: Americans' stock ownership at a record low
« Reply #3 on: April 22, 2016, 09:20:55 AM »
It's all part of the economic Mexification of America.
How have I never heard this term till now?

forummm

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Re: Americans' stock ownership at a record low
« Reply #4 on: April 22, 2016, 10:46:39 AM »
Every time I read a story about the massive inflows of money into index funds, I worry that it's too late for us newcomers to FIRE. What will happen if everyone else catches on to this idea? What if millions of people pursuing the dream of early retirement push stocks up to such high valuations that the 4% rule won't be sustainable going forward?

But then I see surveys like this from Gallup:

http://www.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx

Quote
With the Dow Jones industrial average near its record high, slightly more than half of Americans (52%) say they currently have money in the stock market, matching the lowest ownership rate in Gallup's 19-year trend.

This is down from about 65% in 2007. A lot of small investors fled the market in the Great Recession and, naturally, most of them haven't come back. Herd behavior is an eternal constant, it seems, and that makes me think that those of us who stay the course may be in good shape after all. I'm sure that most of those people are going to get back into the market eventually, when their memories of the crash fade. Hopefully, that will happen just as I'm about to retire, and their demand will push up the value of my investments!

Inflows of funds into stocks doesn't really matter. What you care about is the price you have to buy and sell at. The two are not necessarily the same. I wouldn't worry about what other people are doing. Just keep saving and buying/holding and you'll be fine. As the economy grows your asset valuations will too.

dougules

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Re: Americans' stock ownership at a record low
« Reply #5 on: April 22, 2016, 10:54:22 AM »
Also, with forty percent of millenials (ages 18-32) who are not enrolled in school earning less than ten thousand dollars a year, you are not going to see a flood of young workers choosing to, or even being capable of diverting some of their income into stocks or other longer-term vehicles.

It's all part of the economic Mexification of America.

Hopefully the Mexification of America will come with tacos al pastor, mole poblano, and fresh papaya. 

forummm

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Re: Americans' stock ownership at a record low
« Reply #6 on: April 22, 2016, 11:14:45 AM »
Also, with forty percent of millenials (ages 18-32) who are not enrolled in school earning less than ten thousand dollars a year, you are not going to see a flood of young workers choosing to, or even being capable of diverting some of their income into stocks or other longer-term vehicles.

It's all part of the economic Mexification of America.

Hopefully the Mexification of America will come with tacos al pastor, mole poblano, and fresh papaya. 

Mmmmmm, yes. And low cost of living. But not the undrinkable water. And not the drug gangs (hopefully Canada doesn't adopt the US's insane drug policies and we won't have to worry about that one).

MgoSam

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Re: Americans' stock ownership at a record low
« Reply #7 on: April 22, 2016, 11:25:09 AM »
I'd also like the stronger work ethic as well.

FireLane

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Re: Americans' stock ownership at a record low
« Reply #8 on: April 22, 2016, 06:31:42 PM »
I wouldn't worry about what other people are doing. Just keep saving and buying/holding and you'll be fine. As the economy grows your asset valuations will too.

I only worry insofar as it pushes up the P/E ratios. Obviously, I'm going to keep buying stocks no matter what, since any return at all is better than the big fat nothing I'd get from holding cash. And I know trying to time the market is a fool's game. Even so, I'd rather buy at a P/E of 17 than 20, just because it implies more room to grow in the future.

One Noisy Cat

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Re: Americans' stock ownership at a record low
« Reply #9 on: April 22, 2016, 11:10:24 PM »
Also, with forty percent of millenials (ages 18-32) who are not enrolled in school earning less than ten thousand dollars a year, you are not going to see a flood of young workers choosing to, or even being capable of diverting some of their income into stocks or other longer-term vehicles.

It's all part of the economic Mexification of America.

Hopefully the Mexification of America will come with tacos al pastor, mole poblano, and fresh papaya.

And Salma Hayek.  Especially Salma Hayek


Reminds me of the infamous "Death of Equities" cover for "Business Week" in 1979 which said that 7 million people left the stock market in the 1970s (I didn't leave, just stopped investing which was almost as bad) and how it was only the old people who foolishly stayed with stocks instead of gold, real estate, diamonds and fine art.

I don't market time because I know I would be horrible at it (see preceding paragraph). But if I ever had a moment when I said "I KNOW the market is about to have a massive rally" it was in the spring of 2009 when I read in my library's copy of "USA Today" about how a 34 year old said he moved his IRA money out of the market and into a Guaranteed Value contract. Dude, you have 30 years to a conventional retirement. This six month bear market was tough to watch. But it will come back someday and you can easily miss it.

Some unfortunates probably had to take money out despite doing things right. But other times you see this and you feel like it's an endless loop of silly behavior.

FIREby35

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Re: Americans' stock ownership at a record low
« Reply #10 on: April 23, 2016, 08:15:20 AM »
It is an "endless loop of silly behavior." So few humans take the time to read/learn about the clear patterns of human failure/behavior experienced over thousands of years of humanity and doom themselves to repeat the exact same mistakes. It is amazing on so many levels.

I once posted in the "mustachianism around the web" area a U.S. Treasury report that outlined the top behavioral "traps" around investing. They were the timeless buying high, selling low, market timing, etc. All were an "endless loop of silly behavior."

Humanity: doing the exact same thing now and forever, but believing it is original.

Also, I have lived in MX, am Bi-Lingual and follow their politics (a little, not an expert or anything), and I think your "Mexification" comment has a ring of truth. There is lots of money in MX (I think it is the 13th largest economy in the world). It is just concentrated in fewer hands. My wife and I say Mexico is awesome - if you have money.

forummm

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Re: Americans' stock ownership at a record low
« Reply #11 on: April 25, 2016, 09:10:21 AM »
I wouldn't worry about what other people are doing. Just keep saving and buying/holding and you'll be fine. As the economy grows your asset valuations will too.

I only worry insofar as it pushes up the P/E ratios. Obviously, I'm going to keep buying stocks no matter what, since any return at all is better than the big fat nothing I'd get from holding cash. And I know trying to time the market is a fool's game. Even so, I'd rather buy at a P/E of 17 than 20, just because it implies more room to grow in the future.

Yeah, I'd rather be buying at PE 1. But everyone else out there also wants to be in the market so it's more expensive than that. It's partly because of low interest rates. All the other alternative investment options are providing a lower return, so it makes sense that stocks would also be promising a lower return as well. And given that low interest rates are projected for quite some time, we may be likely to see high PEs for quite awhile as well. So not a lot of opportunity to market time by waiting for them to go back to "normal".

dougules

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Re: Americans' stock ownership at a record low
« Reply #12 on: April 25, 2016, 10:14:07 AM »
I wouldn't worry about what other people are doing. Just keep saving and buying/holding and you'll be fine. As the economy grows your asset valuations will too.

I only worry insofar as it pushes up the P/E ratios. Obviously, I'm going to keep buying stocks no matter what, since any return at all is better than the big fat nothing I'd get from holding cash. And I know trying to time the market is a fool's game. Even so, I'd rather buy at a P/E of 17 than 20, just because it implies more room to grow in the future.

Yeah, I'd rather be buying at PE 1. But everyone else out there also wants to be in the market so it's more expensive than that. It's partly because of low interest rates. All the other alternative investment options are providing a lower return, so it makes sense that stocks would also be promising a lower return as well. And given that low interest rates are projected for quite some time, we may be likely to see high PEs for quite awhile as well. So not a lot of opportunity to market time by waiting for them to go back to "normal".

I don't know why more people haven't mentioned the connection with low interest rates.   The stock market had to go up to ridiculous PE ratios to bring risk premiums back to normal levels after everybody stopped panicking.  As soon as interest rates start to go up for real, PE ratios are going to have to go back down.  Of course that could play out in the obvious way by stocks going way down, but it could also play out through inflation.  Also, who knows when interest rates will get back to normal.  I'm still holding my nose and buying mutual funds with any spare cash.  As a buyer, though, I can't wait for the big correction in whatever form it comes. 

forummm

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Re: Americans' stock ownership at a record low
« Reply #13 on: April 27, 2016, 08:06:09 AM »
I wouldn't worry about what other people are doing. Just keep saving and buying/holding and you'll be fine. As the economy grows your asset valuations will too.

I only worry insofar as it pushes up the P/E ratios. Obviously, I'm going to keep buying stocks no matter what, since any return at all is better than the big fat nothing I'd get from holding cash. And I know trying to time the market is a fool's game. Even so, I'd rather buy at a P/E of 17 than 20, just because it implies more room to grow in the future.

Yeah, I'd rather be buying at PE 1. But everyone else out there also wants to be in the market so it's more expensive than that. It's partly because of low interest rates. All the other alternative investment options are providing a lower return, so it makes sense that stocks would also be promising a lower return as well. And given that low interest rates are projected for quite some time, we may be likely to see high PEs for quite awhile as well. So not a lot of opportunity to market time by waiting for them to go back to "normal".

I don't know why more people haven't mentioned the connection with low interest rates.   The stock market had to go up to ridiculous PE ratios to bring risk premiums back to normal levels after everybody stopped panicking.  As soon as interest rates start to go up for real, PE ratios are going to have to go back down.  Of course that could play out in the obvious way by stocks going way down, but it could also play out through inflation.  Also, who knows when interest rates will get back to normal.  I'm still holding my nose and buying mutual funds with any spare cash.  As a buyer, though, I can't wait for the big correction in whatever form it comes. 

The Fed has already started raising rates and the market didn't really respond because the guidance was that rate increases would be incredibly slow. I think that's likely to remain the case for quite some time. In the meantime, companies are earning money. If you have your cash on the sideline, then you aren't partaking in that earning. Will there even be a big correction once interest rates get to 1% or 2%? Perhaps not. If the market stays stagnant (and still spits out dividends), the accumulated earnings and earnings growth over the next several years could lower PEs without there being any decline in market prices. Prices could even continue to rise while PEs shrink. A big crash or correction is not necessarily going to happen. And the correction could be from S&P 500 value of 2500 to 2300 sometime several years from now. Sitting on the sidelines with it at 2050 isn't going to help you in that scenario.

dougules

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Re: Americans' stock ownership at a record low
« Reply #14 on: April 28, 2016, 10:46:55 AM »
I wouldn't worry about what other people are doing. Just keep saving and buying/holding and you'll be fine. As the economy grows your asset valuations will too.

I only worry insofar as it pushes up the P/E ratios. Obviously, I'm going to keep buying stocks no matter what, since any return at all is better than the big fat nothing I'd get from holding cash. And I know trying to time the market is a fool's game. Even so, I'd rather buy at a P/E of 17 than 20, just because it implies more room to grow in the future.

Yeah, I'd rather be buying at PE 1. But everyone else out there also wants to be in the market so it's more expensive than that. It's partly because of low interest rates. All the other alternative investment options are providing a lower return, so it makes sense that stocks would also be promising a lower return as well. And given that low interest rates are projected for quite some time, we may be likely to see high PEs for quite awhile as well. So not a lot of opportunity to market time by waiting for them to go back to "normal".

I don't know why more people haven't mentioned the connection with low interest rates.   The stock market had to go up to ridiculous PE ratios to bring risk premiums back to normal levels after everybody stopped panicking.  As soon as interest rates start to go up for real, PE ratios are going to have to go back down.  Of course that could play out in the obvious way by stocks going way down, but it could also play out through inflation.  Also, who knows when interest rates will get back to normal.  I'm still holding my nose and buying mutual funds with any spare cash.  As a buyer, though, I can't wait for the big correction in whatever form it comes. 

The Fed has already started raising rates and the market didn't really respond because the guidance was that rate increases would be incredibly slow. I think that's likely to remain the case for quite some time. In the meantime, companies are earning money. If you have your cash on the sideline, then you aren't partaking in that earning. Will there even be a big correction once interest rates get to 1% or 2%? Perhaps not. If the market stays stagnant (and still spits out dividends), the accumulated earnings and earnings growth over the next several years could lower PEs without there being any decline in market prices. Prices could even continue to rise while PEs shrink. A big crash or correction is not necessarily going to happen. And the correction could be from S&P 500 value of 2500 to 2300 sometime several years from now. Sitting on the sidelines with it at 2050 isn't going to help you in that scenario.

The stock market hasn't really taken a plunge aside from a few dips, but it has stopped going up and gone sideways instead.   It seems like that was related to interest rates.  A quarter point increase isn't really a big deal math-wise, but I think it was important psychologically. 

I actually completely agree with the rest of what you're saying.  The scenario you mentioned is actually just a long drawn-out correction.  A correction can take many forms, aside from the stereotypical plunge in prices.  It's anybody's guess as to what form it will take, and the timing is even less predictable.  It's scenarios like that that actually make cash more risky than stocks.   If you get the scenario and/or the timing wrong, the opportunity costs could be pretty big.  Plus I could be totally wrong, and the market may be fairly valued.  Honestly I hope that's the case.  That's why I'm still holding my nose and buying while keeping my fingers crossed that things get back to normal soon. 

MgoSam

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Re: Americans' stock ownership at a record low
« Reply #15 on: April 28, 2016, 10:59:09 AM »
I suspect it's a combination of poor savings habit and fear.

For many people they can't stomach the thought of a loss, even if it is a temporary non-cash event for them. Many others feel like they need to keep staring at it and so aren't able to relax with the money sitting there. It's strange, but that's the way things are. Many of these people are the same ones that think buying a home is always a good investment, and for them, it may well be because it sometimes is the only way people actually save money (by needing to pay a mortgage).

My dad kept cautioning me several times over the past few years when market conditions looked dire, but I just ignored him and held on. My dad used to be heavily involved in the market, but as a day-trading and lost a ton, so I generally ignore his advice. His money sits in the bank now, I have offered to set him up a Vanguard account and tell him which funds to put his money in but he's ignored this and I haven't pushed. My parents expenses are low* and he has enough to live off easily.

*Exception is when it comes to their grandkids (my nieces and nephew), of course!

Huskie87

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Re: Americans' stock ownership at a record low
« Reply #16 on: May 02, 2016, 09:49:59 AM »
these surveys are nice, but are not an accurate reflection of equity ownership rate.  Hopefully the url below will work for you.  Essentially this is the mathematical formula for calculating public equity ownership rate on the federal reserve's research website.  As you can see, equity ownership rates often follow the level of the stock market.  This isn't surprising as people like to buy high and sell low.  As soon as someone hears that a peer made 30% last year in the stock market, they want to invest too. 

https://research.stlouisfed.org/fred2/graph/?g=4mdo

TheGrimSqueaker

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Re: Americans' stock ownership at a record low
« Reply #17 on: May 02, 2016, 10:11:08 AM »
these surveys are nice, but are not an accurate reflection of equity ownership rate.  Hopefully the url below will work for you.  Essentially this is the mathematical formula for calculating public equity ownership rate on the federal reserve's research website.  As you can see, equity ownership rates often follow the level of the stock market.  This isn't surprising as people like to buy high and sell low.  As soon as someone hears that a peer made 30% last year in the stock market, they want to invest too. 

https://research.stlouisfed.org/fred2/graph/?g=4mdo

It doesn't help that investment "advisors" and retirement management companies routinely send out "buy now" reminders to help artificially extend a rally or prop up stock prices.