Americans and Stock Ownership

 As I write, it is December 30, 2023 and financial markets are closed in the United States until January 2, 2024. Those of you who do not check your 401K, IRA, or mutual fund balances frequently are likely to be pleasantly surprised when you see your status when your year end statements arrive in the mail.

While many forecasters felt that we would have a recession in 2023 and that equities (stocks) might tank, neither happened. What happens in 2024 is not clear but I thought this holiday weekend would be a good time to look at just who has a stake in the stock market and how much do they own. The media do not cover this a great deal.

Stock ownership in the U.S. has increased in recent years. Records are a bit fuzzy when you go back a 100 years but it appears that, when the great crash of 1929 occurred, only approximately 10% of U.S. households owned any position in stocks at all. The people who suffered with a dramatic drop in their net worth or were wiped out in margin calls were a relatively small minority. After World War II ownership crept upward  Things really took off in the 1980’s with the introduction of Individual Retirement Accounts (IRA’s) and salary reduction plans (401k’s). Also, index funds with tiny fees and zero commission trading brought more people, especially the young, into the mix. 

Today, the Federal Reserve projects that approximately 61% of US households have some stake in the US stock market. Sounds great. Let’s look at how that ownership is arrayed.

The Top 1% own 53% of the equity value ($19.2 trillion).

The Top 10% owns 88.6% ($28.0 trillion)

The Bottom 50% own .6% ($21 billion)

Over the last 20 years, the big gains have gone to the top 1% and all other groups have declined. This triggers more wealth inequality and raises eyebrows and some left wing voices.

Go back to 1989 and what do we find:

The Top 1% owned 42.9% of the stock value. 

The Top 90-99% owned 39.3% so the Top 10% owned 82.2%

The  Top 50-90% group owned 17.1%.

The Bottom 50% of US shareholders had 1.2%.

Note that the relative ownership of the Bottom 50% has been cut in half from 1.2% of total to .6%

Today, the average household has $52,000 in stocks of which $15,000 is direct ownership of individual companies (non mutual funds). Some 15.2% of Americans own individual stocks. 

Over the years, from time to time, I have mentioned in MR that there will always be some inequality in a free market economy. Some people work harder, some are more intelligent, some are luckier and a few are born on third base. Charlie Munger, a man I admired very much, once said do not worry too much about American inequality as the next bear market will take the 1% down quite a bit. This is a rare case where I part company with the great man.

The 39% of households who have no skin in the game (equities) at present would gain a bit on the Top 1 and 10% in a down market but they have very little in most cases. And, the Top 10% will bounce back as markets always do.

Remember that the reason the 1% in particular have so much to invest is that they do not spend all of their large incomes. They put the savings to work and, over time, it grows. Many of the 39% who own no shares lead a hand to mouth existence and can save nothing or very little. So, the inequality will persist. 

So far, the inequality has not caused an enormous political backlash. At some point, there could be a change in tax policy in the U.S. to attempt to smooth things out a bit. Americans still love the idea of upward mobility or “rags to riches” so there may be less social engineering here than we have seen in other Western democracies. Also, the 1% have good lobbyists and contribute mightily to the political campaigns of candidates in both major parties.

I want to thank MR readers from all over the world who made this my most successful year ever with the blog. May all of us have a happy, healthy and prosperous 2024! I love hearing from you so to contact me you may reach me at doncolemedia@gmail.com or leave a message on the blog.