“Another lesson I learned early is that there is nothing new on Wall Street,” Jesse Livermore once observed. Because speculation is as old as the hills, there can’t be any. Whatever occurs in the stock market today has occurred previously and will occur again.”
In other words, in the markets, humans are the only constant, and human nature does not change.
However, markets change over time, and which humans own the assets engaged in the markets has changed significantly.
Goldman Sachs just released some fascinating data on how stock and bond ownership has changed over time. First, this chart indicates who owns the government’s debt in the United States:
Some people are concerned that other countries are now the largest lenders to the US government, implying that they have control over our finances. However, I see this as a good indicator. It demonstrates how intertwined everything has become as markets have gotten more worldwide. This is a good thing from the standpoint of world peace among the globe’s leading regions.
It’s difficult to comprehend just how institutionalized markets have become since the 1940s. Although households continue to be the largest group of property owners, who makes the buying and selling decisions has become significantly more diverse in recent years.
In the 1940s and 1950s, mom and pop practically ran the market, but now it’s nearly entirely controlled by professional investors. With so many conflicting opinions and ambitions, not only has this boosted competition for the finest investment ideas, but it’s also made it more difficult than ever to have a finger on the pulse of market mood.
This one goes a step further by displaying equity ownership based on household net worth:
So maybe the stockholders in the United States aren’t so diversified. For a long time, wealthy households have been the majority stockholders, but the alarming trend for me is the massive fall in the 50th-90th percentile. Since 1989, it appears to have been more than halved.
There are numerous explanations for why this decline has occurred, but if the current trend continues, the gap between the haves and the have-nots will only expand. The middle and upper middle classes will never catch up to the wealthy if they do not own financial assets. I wish there was a more straightforward approach to encourage (force) more individuals to invest in the stock market.
This graphic is also one of the reasons I’m not too concerned about the assumption that when baby boomers retire and sell all of their investments, they’ll create a market crash. Because they won’t need all of it, the majority of it will likely be donated to charity or passed on to the next generation.
Now, here’s a breakdown of how domestic and international stock ownership has changed over time among US investors:
This is a positive trend since it suggests that since the 1980s and 1990s, American investors have become more diversified. Because U.S. equities account for about half of the global market capitalization, there is still a home country bias in these figures, but the trend is positive.
One of the reasons this trend is gaining traction is that investing around the world has been easier and less expensive in recent decades.
I know I’m stating the obvious, but the U.S. household’s balance sheet is enormous. Cash is the only asset class that has shrunk over time, which is a good thing considering it’s an asset class that is practically certain to lose money to inflation over time (although I’m guessing the fact that interest rates have fallen so much has a lot to do with this).
- ETFs get all the attention, but mutual funds still have the most assets. Mutual funds have 15 times the number of bonds and 4 times the number of equities as ETFs. ETFs have a long way to go before they supplant their more tax-inefficient counterparts.
- Pensions hold over one-tenth of both the stock and bond markets in the United States, giving them a significant share of the financial asset universe. Pension difficulties are well-documented, and when funds are allocated to beneficiaries, the share of assets held by pension funds should decrease. However, due to the sheer scale of pension assets, they will have far-reaching ramifications for markets, politicians, and voters in the years ahead as they attempt to address financing shortages.
- With all of this cash, it’s easy to see why the banking industry is so competitive. These money must be managed, advised, traded, and cared for by someone. This is why I believe it is irrational to believe that index funds would drive active managers out of the market. There’s much too much money on the line for that to ever happen in any significant sense.
What percentage of the stock market does the 1 own?
NPR highlighted the distribution of stock market ownership in the United States (direct and indirect through mutual funds) in March 2017, which is highly concentrated among the wealthiest families:
- In 2016, 52 percent of adults in the United States owned shares. The Great Recession caused a considerable drop in ownership, which peaked at 65 percent in 2007.
- The richest 10% of investors control 81 percent of stock wealth, the next 10% (80th to 90th percentile) own 11 percent, and the lowest 80% own 8 percent as of 2013.
According to the Federal Reserve, the median value of stock ownership by income group in 2016 was as follows:
According to NPR, over half of Americans seem unconcerned when politicians mention the stock market as a metric of economic success. Furthermore, more than a third of full-time workers in the United States lack access to pensions or retirement plans such as 401(k)s, which are based on financial assets such as stocks and bonds. According to the New York Times, the percentage of workers covered by generous defined-benefit pension plans has decreased from 62% in 1983 to 17% in 2016. While some economists believe that rising stock prices generate a “wealth impact” that boosts economic growth, others, such as former Dallas Federal Reserve Bank President Richard Fisher, argue that these effects are limited.
In a mutual fund, who owns the stock?
Mutual funds are investing techniques that allow you to combine your money with other investors to buy a portfolio of stocks, bonds, and other securities that would be difficult to replicate on your own. A portfolio is a term used to describe something. The entire value of the securities in the portfolio, divided by the number of outstanding shares, determines the mutual fund’s price, commonly known as its net asset value (NAV). The value of the securities owned by the portfolio at the conclusion of each business day determines this price. Investors in mutual funds do not own the securities in which the fund invests; instead, they possess shares in the fund.
One or more portfolio managers, assisted by teams of researchers, make the choices to buy and sell shares in actively managed mutual funds. The fundamental purpose of a portfolio manager is to find investment opportunities that will help the fund outperform its benchmark, which is usually a well followed index like the Standard & Poor’s 500. Examining the fund’s returns in comparison to this benchmark is one technique to determine how well a fund manager is performing. While it’s natural to focus on short-term performance when analyzing a fund, most experts will advise you that longer-term performance, such as 3- and 5-year returns, is more important.
Who is in charge of stock prices?
In general, the stock market’s prices are determined by supply and demand. As a result, the stock market resembles other economic marketplaces. When a stock is sold, the buyer and seller trade money for ownership of the shares. The new market price is determined by the price at which the stock was purchased.
What is the most valuable stock?
Berkshire Hathaway (BRK. A) has the highest-priced shares of any U.S. company, and it is also one of the world’s largest corporations, consistently ranking in the top ten by market capitalization. Berkshire Hathaway was founded as a textile company, but Warren Buffett bought it and turned it into a holding company for his investments.
Where does the majority of wealth originate?
Except for the top 1%, where capital income and capital gains on financial assets grow more important, labor income is the most important determinant of wealth. Even at the top of the wealth distribution, inheritances and gifts are not a significant factor of wealth.
How much money do you need to be wealthy?
In a survey done by Schwab in 2021, it was discovered that Americans feel a personal net worth of $1.9 million is required to be considered prosperous. This would require the value of the property you possessed, less all of your debts, to total about $2 million.
However, you may have a different idea of what it means to be wealthy. Some people consider themselves affluent if they have a net worth of $1 million, while others would not consider themselves wealthy until they have a net worth of $5 million. A great deal is determined by your expectations. For example, most respondents claimed they’d need $1.1 million to be financially happy, and you might conclude that reaching financial pleasure is enough to make you wealthy.
The bottom line is that once you have a positive net worth (as opposed to owing more money than the value of everything you own), the amount of money you need to feel prosperous is entirely up to you. You can readily verify if you’ve met that goal by tracking your net worth.
Why would anyone want to invest in bonds instead of stocks?
- Bonds, while maybe less thrilling than stocks, are a crucial part of any well-diversified portfolio.
- Bonds are less volatile and risky than stocks, and when held to maturity, they can provide more consistent and stable returns.
- Bond interest rates are frequently greater than bank savings accounts, CDs, and money market accounts.
- Bonds also perform well when equities fall, as interest rates decrease and bond prices rise in response.
Stocks or bonds: which is a better investment?
Bonds are safer for a reason: you can expect a lower return on your money when you invest in them. Stocks, on the other hand, often mix some short-term uncertainty with the possibility of a higher return on your investment. Long-term government bonds have a return of 56%.