What % of People Invest in the Stock Market?

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jimgour
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What % of People Invest in the Stock Market?

Post by jimgour » Thu Dec 15, 2016 3:49 pm

I have a friend I often discuss investing with. He is already retired, has a reasonable amount of money, and has tried many non-Boglehead tactics (Individual stocks, day trading, options, puts, etc.). He is also concerned that he may one day run out of money. I have been gently prodding him with snippets of "Bogleheadisms" to try to get him to "see the light".

Today he wrote (paraphrased to omit things that might be deemed "political"):

I was reminded yesterday that the bulk of the nation is not in the stock market. The number I heard was 10% of the people in this country own 90% of the wealth in the stock market. Something like that. So really only the top 10% benefit from the the tripling of the DJIA during the past eight years. The point is the masses just haven't shared in the prosperity.

I have a few questions about these statements:

1. Is it reasonable to say that only 10% of the people in this country invest in the stock market? What is the real percentage?

2. Do people who do not directly invest in the stock market also somehow benefit from the stock market doing well?

As an aside, today he actually asked where he could learn more about how the Bogleheads invest, so I sent him the link to our site and referred him to the "New to investing" link. He is not new to investing, but, he is new to the "proper" way to invest (in my humble opinion). I have referred five to ten people (serious about learning how to invest better), to our website every year for fifteen years now. Have I become a Boglehead evangelist?

Jim

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Re: What % of People Invest in the Stock Market?

Post by TheTimeLord » Thu Dec 15, 2016 3:57 pm

https://lmgtfy.com/?iie=1&q=What+%25+of ... +Market%3F



More than half of Americans, 52 percent, are currently not investing in the stock market—either by buying individual stocks or mutual funds, or through a retirement account such as a 401(k) or IRA, according to a new Bankrate.com survey.Apr 9, 2015
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: What % of People Invest in the Stock Market?

Post by Quark » Thu Dec 15, 2016 4:02 pm

His statement was that 10% own 90% of the stock market wealth. This is not the same as only 10% invest in the stock market. Per TheTimeLord, about half invest in the stock market. However, a small percentage of the half that invest own the vast bulk of the wealth. 100% could own stocks and it could still be the case that 10% own 90% of the stock wealth.
Last edited by Quark on Thu Dec 15, 2016 4:03 pm, edited 1 time in total.

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Re: What % of People Invest in the Stock Market?

Post by dbr » Thu Dec 15, 2016 4:03 pm

jimgour wrote:I have a friend I often discuss investing with. He is already retired, has a reasonable amount of money, and has tried many non-Boglehead tactics (Individual stocks, day trading, options, puts, etc.). He is also concerned that he may one day run out of money. I have been gently prodding him with snippets of "Bogleheadisms" to try to get him to "see the light".

Today he wrote (paraphrased to omit things that might be deemed "political"):

I was reminded yesterday that the bulk of the nation is not in the stock market. The number I heard was 10% of the people in this country own 90% of the wealth in the stock market. Something like that. So really only the top 10% benefit from the the tripling of the DJIA during the past eight years. The point is the masses just haven't shared in the prosperity.

I have a few questions about these statements:

1. Is it reasonable to say that only 10% of the people in this country invest in the stock market? What is the real percentage?

I don't know the real percentage but there is a big difference between "10% own 90% of the wealth" and "10% of the people invest." A small number of people have very large investments, but many people have small investments. People who have 401K, 457, or other retirement plans are invested in stock to some degree usually. At my former employer all employees are in the 401K and have at least the company stock contributions under the performance sharing plan. Pension plans and insurance companies may own some stock in assets needed to cover payout, though bonds more likely (I don't know much about that). I wager very few people have actual taxable brokerage accounts and invest in stock there. It is still absolutely true that a very small fraction of the population shares in the success of the stock market, mainly because wealth is already extremely concentrated in a small number of people.

2. Do people who do not directly invest in the stock market also somehow benefit from the stock market doing well?

I'm not sure of a good example, but there is an inverse effect. The market does well when the economy does well when companies do well when people employed by those companies do well.

As an aside, today he actually asked where he could learn more about how the Bogleheads invest, so I sent him the link to our site and referred him to the "New to investing" link. He is not new to investing, but, he is new to the "proper" way to invest (in my humble opinion). I have referred five to ten people (serious about learning how to invest better), to our website every year for fifteen years now. Have I become a Boglehead evangelist?

Jim

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Re: What % of People Invest in the Stock Market?

Post by psteinx » Thu Dec 15, 2016 4:15 pm

Others have pointed out the issue with the 10/90/10 inference. FWIW, if I had to GUESS, I'd guess that among shares owned reasonably directly (including through funds) by individuals/households, that 10% own MORE than 90% of the wealth. Probably something closer to 8/92 or some such. That's EXCLUDING pension funds, endowment funds, sovereign wealth funds, etc.

As for the % of people exposed, in a positive way, to the stock market:

1) To the extent that a strong stock market coincides with a strong economy, MOST adults are exposed in some fashion. Their absolute wealth is likely to be higher if the stock market doubles, as the economy will likely be healthier, some of the wealth will trickle down in various ways, etc. But on a relative scale, they may feel worse off.

2) Many folks have some form of individual retirement accounts - 401k, IRA, or other forms.

3) There is also direct ownership, outside of tax deferred accounts.

4) Some folks with defined benefit pensions may have a connection to the stock market, in that the pension funds behind these are likely invested to some extent in the stock market. The ability of the pension fund to fully deliver the defined benefits (or, perhaps, for a union to negotiate an increase in benefits) is likely affected by equity performance.

(There are other ways in which market performance affects broad swathes of the population, but these are some of the major ones...)

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Re: What % of People Invest in the Stock Market?

Post by lack_ey » Thu Dec 15, 2016 4:27 pm

TheTimeLord wrote:https://lmgtfy.com/?iie=1&q=What+%25+of ... +Market%3F



More than half of Americans, 52 percent, are currently not investing in the stock market—either by buying individual stocks or mutual funds, or through a retirement account such as a 401(k) or IRA, according to a new Bankrate.com survey.Apr 9, 2015
A better source is probably Gallup. Though their figure is pretty close.

Image
http://www.gallup.com/poll/182816/littl ... arket.aspx

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Re: What % of People Invest in the Stock Market?

Post by Quark » Thu Dec 15, 2016 4:28 pm

psteinx wrote:1) To the extent that a strong stock market coincides with a strong economy...
"Alas, this is not the case. Work done by Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School established this back in 2005. Over the 17 countries they studied, going back to 1900, there was actually a negative correlation between investment returns and growth in GDP per capita, the best measure of how rich people are getting. In a second test, they took the five-year growth rates of the economies and divided them into quintiles. The quintle of countries with the highest growth rate over the previous five years, produced average returns over the following year of 6%; those in the slowest-growing quintile produced returns of 12%. In a third test, they looked at the countries and found no statistical link between one year's GDP growth rate and the next year's investment returns."

http://www.economist.com/blogs/buttonwo ... h_illusion

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Re: What % of People Invest in the Stock Market?

Post by Rodc » Thu Dec 15, 2016 4:36 pm

Stock ownership is even more concentrated when it comes to share of total stock holdings. In 2010, the latest period available, the top 10 percent of Americans by net worth held 81 percent of all directly held or indirectly held stocks, according to Edward N. Wolff, an economics professor at New York University who specializes in inequality and Federal Reserve data.
http://www.cnbc.com/2014/09/08/the-stoc ... r-low.html

Note this is a couple of years old, but I doubt it is that much different now and with the run up in stocks since 2010 likely more skewed towards the wealthy. So 10% owning 90% may not be far off.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: What % of People Invest in the Stock Market?

Post by arcticpineapplecorp. » Thu Dec 15, 2016 4:57 pm

Rodc wrote:
Stock ownership is even more concentrated when it comes to share of total stock holdings. In 2010, the latest period available, the top 10 percent of Americans by net worth held 81 percent of all directly held or indirectly held stocks, according to Edward N. Wolff, an economics professor at New York University who specializes in inequality and Federal Reserve data.
http://www.cnbc.com/2014/09/08/the-stoc ... r-low.html

Note this is a couple of years old, but I doubt it is that much different now and with the run up in stocks since 2010 likely more skewed towards the wealthy. So 10% owning 90% may not be far off.
I thought I would provide an interesting part of the cnbc article (below). The part in red is for your friend's sake. So mathematically speaking the rich get richer because they have more money invested. Compare the following rich vs. not so rich investors invested in the same thing earning the same return (over one year--let's say they both invested at the top of 2013 all in Vanguard's total stock market index fund (U.S.). That fund earned around 33% that year :moneybag ) What would the effect be for the rich person to have invested $1,000,000 at the start of 2013 and the not so rich person to have invested $1000?

Amount invested 1/1/13:
$1,000,000
$1,000

Amount as of 12/31/13 (if each earned 33% in 2013):
$1,330,000 (made $330,000)
$1,330 (made $330)

Investing is based on 1. amount of money invested, 2. amount of time invested, 3. rate of return on investment over time period invested. The more you invest, the more you're likely to make (invest as much as you can) and so on (the longer you invest and the higher rate of return you earn, the ore you're likely to make--compounding interest). That's why the rich keep getting richer. Because they have more money, so they make more money!
The flip side of the data is that those who have stayed in stocks—whatever their wealth level—have generally done the best in the recovery. The mean value of stock holdings for those who held them hit $269,000 in 2013, up 18 percent from $228,000 in 2010 and up from $137,000 in 1995.

Among the top 10 percent, the mean value of stock holdings soared to $975,600 in 2013, up from $834,800 in 2010. For those whose net worth puts them in the bottom 20 percent to 40 percent of Americans, the mean value of their holdings rose to $51,000 from $44,000 in 2010.

Stocks have helped the rich get richer in this recovery. But they have also helped the less-rich get richer.
Last edited by arcticpineapplecorp. on Fri Dec 16, 2016 2:05 pm, edited 4 times in total.
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Re: What % of People Invest in the Stock Market?

Post by arcticpineapplecorp. » Thu Dec 15, 2016 5:02 pm

Oh and one other thing, sometimes examples are misleading or misinterpreted. As was shown, about half of the population invests in the stock market to some extent (either directly through actual stocks or indirectly, through mutual funds). It used to be the case (back in the mid 20th century) that 90% of all stock was owned by individuals and 10% was owned by institutions (mutual funds, pension funds, endowment funds, etc.). Now the opposite is true, 90% of the stock that exists is owned by institutions and only 10% is actually owned by individuals.

So if your friend owns stocks directly (not indirectly through mutual funds) he should know he's playing with the big boys and girls who have faster supercomputers, way more money, a team of analysts working round the clock and office space likely located right next to the exchange so they can execute their trades a nanosecond faster than your friend (and therefore get a better price than him). Not a game I'd want to be playing.
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Re: What % of People Invest in the Stock Market?

Post by itstoomuch » Thu Dec 15, 2016 5:10 pm

Google "Wealth Distribution" either within Bogleheads.org (top right of screen, not mobile device) or outside of BH.org

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Re: What % of People Invest in the Stock Market?

Post by Svensk Anga » Thu Dec 15, 2016 5:26 pm

jimgour wrote:
2. Do people who do not directly invest in the stock market also somehow benefit from the stock market doing well?
Just about everyone with any spending money is exposed to state and local taxes. The states and cities have pension obligations. If stocks (and bonds) fail to deliver good returns, the taxpayers will be on the hook to provide for the pensioners. Seems everyone has at least a tiny bit of skin in this game.

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Re: What % of People Invest in the Stock Market?

Post by nisiprius » Thu Dec 15, 2016 5:36 pm

It's hard to know the right way to formulate the question. For example, if a defined benefit pension plan invests in the stock market, are plan participants "people investing in the stock market?"

The ICI Institute Factbook, which of course is a cheerleader for investment companies (mutual funds being a form of investment company) has an interesting smorgasbord of statistics in chapter 6 of the 2016 Investment Company Fact Book. Naturally, it emphasizes percent participation which gives high numbers.

Image

But how many participants in 401(k) plans actually think of themselves as "investing in the stock market?" I'd guess surprisingly few. And the next question of course is how much money do they actually have in these plans?

The ICI says:
What do they own?
$200,000 is the median household financial assets
$120,000 is the median mutual fund assets
67 percent hold more than half of their financial assets in mutual funds
61 percent own IRAs
84 percent own DC retirement plan accounts
3 mutual funds is the median number owned
88 percent own equity funds
They have some income distribution stuff:

Image
Image

What to make of it? I would say that "most families with wage earners in good jobs do have some investment in the stock market, via mutual funds, usually in their retirement accounts. We learn elsewhere that the average 401(k) balance is about $100,000.

I don't think these numbers are consistent with "the bulk of the nation is not in the stock market." I'd say "the bulk of the nation is in the stock market to the tune of five or six figures, but that's not enough for the stock market to be a primary factor in most families' financial well-being."
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Re: What % of People Invest in the Stock Market?

Post by jimgour » Thu Dec 15, 2016 6:18 pm

First, thanks to everyone who has responded, even to those who did so in a slightly humorous way. I can't believe the great feedback that has already been posted.

Second, I am now going to go out on a limb and send a link to this thread, to my friend. That may cause a bit of fireworks, but he is a great guy, and I don't think he will put out a contract on me. After he gets over his shock, he may even post here. Go easy on him, for my sake. I know the normal suggestions here are to not try to help friends (or relatives), but I've always been a slow learner. Now, I'll just have to ... see what happens.

Thank you again, Jim

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Re: What % of People Invest in the Stock Market?

Post by Rickard82 » Thu Dec 15, 2016 6:52 pm

I looked through the Gallup polls and found that although 52% of people are invested in the stock market, only 22% of people consider the stock market to be the best long-term investment.

It's barely higher than the answer "gold" at 17%.

http://www.gallup.com/poll/1711/stock-market.aspx

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Re: What % of People Invest in the Stock Market?

Post by Dulocracy » Fri Dec 16, 2016 1:44 pm

jimgour wrote: have referred five to ten people (serious about learning how to invest better), to our website every year for fifteen years now. Have I become a Boglehead evangelist?
Jim
First, thank you for this post. Not only was it interesting, it is a good conversation starter with some of my friends. Anything we can do to get people to invest in their future is a good thing. "Keeping up with the Jones's retirement savings" style peer-pressure can be effective with friends.

I would say that if not evangelist, you at least qualify as ambassador. I have referred about 20 people to this site, of whom I know 2 came and joined. You can lead a horse to water...
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Re: What % of People Invest in the Stock Market?

Post by Nate79 » Fri Dec 16, 2016 2:18 pm

There are a lot of people in this country to saved and fund their retirement using only land, homes, CD's, savings accounts, and bonds.

I'm curious in this thread when people say "stock market" does it include bonds (either individual bonds or bond mutual funds)?

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Re: What % of People Invest in the Stock Market?

Post by dbr » Fri Dec 16, 2016 2:46 pm

Nate79 wrote:There are a lot of people in this country to saved and fund their retirement using only land, homes, CD's, savings accounts, and bonds.

I'm curious in this thread when people say "stock market" does it include bonds (either individual bonds or bond mutual funds)?
No, bonds are traded on the bond market. However, there can be some confusion as the Treasury also issues savings bonds, EE and I, and others previously, that are not tradable on a market and probably function more like holding a CD. I suspect even fewer people participate in the bond market than in the stock market and if they participate it would by holding balanced mutual funds such as target retirement funds, etc.

Another nuance is that many Treasury bonds are not bonds but notes and bills, though they trade and act like bonds and we call them bonds.

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Re: What % of People Invest in the Stock Market?

Post by DaftInvestor » Fri Dec 16, 2016 4:38 pm

OP: Don't extrapolate that the 48% of people that aren't investing in the stock market aren't saving for retirement or that they will be in trouble for retirement. Many of us can't rely on SS as our income replacement ratio will be very low and we have no pension but there are still public-sector/education/some-corporate jobs that come with fixed-pensions that provide reasonable income replacement upon retirement. So while many of us MUST invest in order to be able to retire with at least 60% income replacement - some folks don't need to necessarily save as aggressively since they have pensions that are essentially doing this for them. Also - SS provides much better income replacement for lower-income folks than for higher income folks - so many lower-income folks make due with SS (As I recall the lowest-quintile of salaried folks get over 70% income replacement on average - compare this to the highest-quintile that only get about 30% replacement - thus the need to invest).

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Re: What % of People Invest in the Stock Market?

Post by JoMoney » Fri Dec 16, 2016 5:49 pm

... really only the top 10% benefit from the the tripling of the DJIA during the past eight years. The point is the masses just haven't shared in the prosperity. ...
It's probably a bit tangential of the point of this thread, but framing it this way is a bit biased. Whatever the percentage of stock owners were 8 years ago, it was likely pretty close to the same percentage 9 years ago, and it hasn't really even doubled (let alone tripled since then). Go back another 8 years prior that and it didn't do much of anything.... sure, some smart folks may have gotten out and in at the right time, and maybe some people out luck of their age and the time period they began saving may have gotten in at a time to take advantage of the past 8 years exclusively, but as a group investors in the stock market haven't tripled their worth in the past 8 years unless you ignore all their losses of the period before that.
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Re: What % of People Invest in the Stock Market?

Post by David Jay » Fri Dec 16, 2016 6:23 pm

lack_ey wrote: Image
Great chart. It helps to ease concerns about a bubble. 65% immediately before the financial crisis, still 10 percentage points lower today.
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Re: What % of People Invest in the Stock Market?

Post by Nate79 » Fri Dec 16, 2016 6:40 pm

dbr wrote:
Nate79 wrote:There are a lot of people in this country to saved and fund their retirement using only land, homes, CD's, savings accounts, and bonds.

I'm curious in this thread when people say "stock market" does it include bonds (either individual bonds or bond mutual funds)?
No, bonds are traded on the bond market. However, there can be some confusion as the Treasury also issues savings bonds, EE and I, and others previously, that are not tradable on a market and probably function more like holding a CD. I suspect even fewer people participate in the bond market than in the stock market and if they participate it would by holding balanced mutual funds such as target retirement funds, etc.

Another nuance is that many Treasury bonds are not bonds but notes and bills, though they trade and act like bonds and we call them bonds.
Actually in the links listed above the surveys did not just include "stocks" but any mutual fund and any money in 401ks. They did not exclude bond mutual funds. This was what I was trying to determine.

When someone is asked the question: Do you invest in the stock market? and Do you invest in mutual funds? I believe that people people would include bond mutual funds in that category.

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Re: What % of People Invest in the Stock Market?

Post by dbr » Fri Dec 16, 2016 7:05 pm

Nate79 wrote: Actually in the links listed above the surveys did not just include "stocks" but any mutual fund and any money in 401ks. They did not exclude bond mutual funds. This was what I was trying to determine.

When someone is asked the question: Do you invest in the stock market? and Do you invest in mutual funds? I believe that people people would include bond mutual funds in that category.
I can see there is some ambiguity there. The Gallup poll seems to specify stocks in mutual funds or 401k's and therefore really just stocks, ie a person investing in a target retirement fund is supposed to only report the fraction in stocks. The ICI chart does say mutual funds and does not use the term stocks at all. That would mean that data is probably not an estimate of stock ownership as such. By reading through the source document from ICI I found this:

"Mutual fund–owning households tend to have a larger appetite for investment risk, and this is reflected in the types of mutual funds they own. Equity funds were the most commonly owned type of mutual fund in mid-2015, held by 88 percent of mutual fund–owning households (Figure 6.15). In addition, 35 percent owned balanced funds, 42 percent owned bond funds, and 54 percent owned money market funds."

The missing information is what was the allocation of dollars across those ownership categories.

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Re: What % of People Invest in the Stock Market?

Post by FinancialDave » Mon Apr 10, 2017 2:54 pm

As a totally unscientific assumption consider that the working class is saving maybe 4% of their salary on average and the retired group is spending around 4% on the back end. Considering that household income is similar for those working as those retired.

If that was true then we should see the investment base growing by an amount related to the much larger working group.

Are there any statistics on how the Market-cap of all stocks and funds (bonds included) for investors have been growing in recent history?

Dave
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Re: What % of People Invest in the Stock Market?

Post by wolf359 » Mon Apr 10, 2017 3:25 pm

I'd say your friend is right. See Table 3 in this 2014 paper published by a Dr. G. William Domhoff at the University of California Santa Cruz.

When wealth distribution is broken out by type of wealth, the top 10% hold 91% of all stock and mutual fund assets.

However, only about half of the population invests in the stock market.

So, putting it all together:

The top 1% holds roughly half of stock market wealth.
The top 2-10% holds an additional 41%.
The top 11-50% holds the remaining 9%.
The bottom 50% does not hold any stock or mutual fund assets.

The bull market has had no impact on the wealth of the bottom 50% who are not investing, and marginal impact on the next 40%. The top 10% got the majority of the benefits.

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Re: What % of People Invest in the Stock Market?

Post by CurlyDave » Wed Apr 12, 2017 1:56 am

...Something like that. So really only the top 10% benefit from the the tripling of the DJIA during the past eight years. The point is the masses just haven't shared in the prosperity.

and

...The bull market has had no impact on the wealth of the bottom 50% who are not investing, and marginal impact on the next 40%. The top 10% got the majority of the benefits...

Both of these statements are very short-sighted. I am retired in a working-class rural community with more than its share of retirees. I know a lot of the local people, most of whom consider the stock market to be nothing but a giant crapshoot with the dice loaded against them.

The people I know are artists, construction workers, contractors, sales people, etc. While it is perfectly possible to make the claim that none of these people have benefited form the DJIA increases, that is simply not true. Poor retirees do not buy art, don't have their homes remodeled, and buy as little as possible. All of the people in the local community have had a lot of their wages paid by the spending of retirees who have directly benefitted from stock price increases.

10% of the people holding 90% of the wealth is probably just about the way life is, but if those 10% stop spending, the entire economy grinds to a halt. The bottom 90% have benefitted, they just don't know where their income really came from.
Last edited by CurlyDave on Wed Apr 12, 2017 7:22 am, edited 1 time in total.

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Re: What % of People Invest in the Stock Market?

Post by bayview » Wed Apr 12, 2017 5:45 am

David Jay wrote:
lack_ey wrote: Image
Great chart. It helps to ease concerns about a bubble. 65% immediately before the financial crisis, still 10 percentage points lower today.
That's an interesting observation. My first thought was, "Look at all the people who got out in 2008-09 and never got back in!"
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Re: What % of People Invest in the Stock Market?

Post by simmias » Wed Apr 12, 2017 6:23 am

The 2016 number for Gallup is 52% invested.

http://www.gallup.com/poll/1711/stock-market.aspx

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Re: What % of People Invest in the Stock Market?

Post by montanagirl » Wed Apr 12, 2017 8:47 am

Well, when more people are in the stock market, say like in 2007, it's kind of a bad sign, isn't it? :wink:

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Re: What % of People Invest in the Stock Market?

Post by NiceUnparticularMan » Wed Apr 12, 2017 8:56 am

montanagirl wrote:Well, when more people are in the stock market, say like in 2007, it's kind of a bad sign, isn't it? :wink:
Interestingly it might have gone the opposite way before the dot-com bust, although that might depend a bit on the exact timing of the 2000 survey data.

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