Link Between More IRAs and Stock Market Increases

[heybro]

As I understand, the IRA is a recent invention designed to allow employers to not have to pay for you to live in retirement.  Now they contribute some and you contribute too.  Are we collectively adding more money in to the stock market than before?  Is this making the stock market go up and up and up?  If the younger generation for some reason decides not to follow this method, will the stock market crash and never go back up?

Or were Pensions all in the stock market anyone so nothing has changed?  But maybe there are now more IRAs than there ever were Pensions?

[trailrated]

As I understand, the IRA is a recent invention designed to allow employers to not have to pay for you to live in retirement.  Now they contribute some and you contribute too.

I think you just contradicted yourself...

[Bill Clay]

"Daniel Greenwald and Sydney Ludvigson from New York University, and Martin Lattau from U.C. Berkeley, offer a different perspective.

After studying the movements of the stock market going back to 1952 they found that nearly all of it can be explained empirically — in other words, by observation, not merely by theory — by three uncorrelated factors:
1. the overall productivity of the economy
2. the degree to which national output ends up in the pockets of either workers, on one hand, or investors on the other
3. fear — or “risk aversion” in the technical parlance

...Changes in these three factors explain 85% of the stock market’s movements over the past 70 or so years...

Profits as a share of GDP are now near record levels. Great for investors, of course. Companies pay out dividends, buy back stock, or spend the money taking over disruptive startups in Silicon Valley. The professors argue that this one factor accounts for most of the stock market’s real gains for the past 35 years."

http://www.marketwatch.com/story/the-3-things-that-make-the-stock-market-tick-2014-10-31

[Bill Clay]

also, regarding stock ownership in 401ks, this is from September 2014 article:

"The Federal Reserve Survey of Consumer Finance found that only 48.8 percent of Americans held stock either directly or indirectly in 2012, the latest period measured. That's the lowest level since 1995, when 40.5 percent of Americans held some form of stock. (Indirect ownership of stock includes stocks held in mutual funds, 401-K plans and other investment vehicles.)
 
The survey said only 14 percent of Americans own stocks directly-down from 21 percent in 2001.

But even more than most assets in America, their ownership is highly skewed toward the wealthy. Fully 93 percent of the wealthiest 10 percent of Americans own stocks. That's nearly twice the level for the middle 50 percent and far more than the 26 percent stock-ownership rate for the bottom 40 percent."

http://finance.yahoo.com/news/stock-gap-american-stock-holdings-151221092.html

[rmendpara]

As I understand, the IRA is a recent invention designed to allow employers to not have to pay for you to live in retirement.  Now they contribute some and you contribute too.  Are we collectively adding more money in to the stock market than before?  Is this making the stock market go up and up and up?  If the younger generation for some reason decides not to follow this method, will the stock market crash and never go back up?

Or were Pensions all in the stock market anyone so nothing has changed?  But maybe there are now more IRAs than there ever were Pensions?

Not likely.

I know it's hard to believe, but most people don't maximize their ira/401k contributions, or even come close to it. I don't know the source, but a quick online search showed some surprising figures (in a bad way) on average balances in 401k accounts. Of course there are IRAs as well, but just to give you an idea.

http://www.ici.org/policy/retirement/plan/401k/faqs_401k

[DavidAnnArbor]

It looks like CALPERS has 63% of assets in either stocks or private equity. CALPERS is the California Public Employees' Retirement System  which manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families.  http://www.calpers.ca.gov/index.jsp?bc=/investments/assets/assetallocation.xml

[hodedofome]

Whether a company offers you a pension or just a 401k, the money is getting invested in stocks and bonds regardless. I don't think 401ks and IRAs are the difference.

[Druid]

Heres a new article on 401k owwnership

http://www.accountingtoday.com/news/retirenment-planning/individual-retirement-plan-ownership-trending-down-as-assets-climb-72791-1.html?utm_campaign=daily-nov%2025%202014&utm_medium=email&utm_source=newsletter&ET=webcpa%3Ae3394553%3A4264236a%3A&st=email

[arebelspy]

If it were the case that stock market increases were driven by more money then P/E valuations would be continually increasing to ever higher levels.  Given that this hasn't happened (bubbles aside), but that companies seem to be valued around the same as they were a half-century ago, it doesn't seem that the invention of IRAs is driving prices.

tl;dr: No, IRAs are not inflating the market.