A recent Gallup poll had some very interesting numbers on stock market participation of Americans, particularly millennials.
For starters, just 52% of Americans have ANY money invested in stocks!
That low participation rate in stock investing is tied with 2013 for a record low in the 19 years that Gallup has been running this survey. And there has been a downward trend since 2007 (a massive 13 point drop!).
Given that 60% of all American workers have access to 401K’s, HSA participation is at an all time high, low-cost and hands-off passive index investing options for amateur investors are more prevalent than ever before, and access to IRA’s and brokerage accounts is easier and cheaper than ever before, this is a surprising and really disturbing trend.
Millennial Stock Market Participation has Declined the Most
Sadly, those who stand to benefit the most over the long-term from investing – millennials – have even more disturbing numbers, with the stock market participation rate dropping from 52% to 38% since 2007, the largest drop of any age group.
The poll didn’t really go into the “why” behind this downward trend, but I think that’s the important question to ask and for each of us to answer.
Is it a fear of investing, prompted by huge dip during the start of the Great Recession? (interesting note: even as the market bottomed in 2009 and rebounded over the next 5 years for huge gains, market participation still declined each year)
Is it too short-term of a focus in performance?
Is it a belief that better returns can be had elsewhere?
Is it simply lack of financial means to invest in the first place?
Is it all of the above?
Or is it something else entirely?
Whatever the reason, there’s this for incentive…
Look, I get it. After the Great Recession, investing can be frightening.
However, if you have the means to invest, yet choose not to, you’re only screwing your future self.
Compound investment returns are a powerful thing that you don’t want to miss out on:
“$1 saved in your twenties can be the equivalent of $10 saved in your fifties, if invested over time.
$10.06 to be exact – at an average annual rate of return of 8% on your investments over 30 years. Even if you factor in 2% annual inflation, you’d have 556% of the buying power for every dollar you save today.”
Outside of real estate (and only in certain markets), you’re not going to find a better return on investment than the stock market over the long-term.
So get out there, start investing in small amounts as a beginner, avoid panic selling, and focus on the long view.
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The question is quite specific as to the types of investments but ETFs were specifically not included and while some ETFs may be a “class” within a mutual fund most are not. So if one owned only ETFs, would the answer to the survey question by yes or no?
As of December 2014, the total number of index-based and actively managed exchange-traded funds (ETFs), including commodity ETFs, domiciled in the United States stood at 1,411. Total net assets of these ETFs were $1.974 trillion and accounted for 13 percent of total net assets managed by long-term mutual funds, ETFs, closed-end funds, and unit investment trusts at the end of 2014. https://www.ici.org/etf_resources/background/faqs_etfs_market
That’s a good question.
The question was phrased as “Do you, personally, or jointly with a spouse, have any money invested in the stock market right now – either in an individual stock, a stock mutual fund, or in a self-directed 401-K or IRA?”
So it is up for respondents interpretation. But stock ETF’s invest in the stock market, and if you own only stock ETF’s, my guess is you answer ‘Yes’ to the question.
Here’s the link on the methodology: http://www.gallup.com/file/poll/191045/Half_Americans_Owns_Stock_Record_Low_160420.pdf
Very disturbing trend indeed. Young people NEED to be invested in the stock market, almost entirely. We are living, and working, longer so it’s imperative to start investing early and often. For anyone who is scared of investing for whatever reason, I would recommend contributing to a Target Date fund and keep contributing consistently over time.
Great post! There was an interesting article on the decline on market returns today as well. Combined with this, retirement isn’t looking too good for some millennials.
It is all about Risk.
Risk management. Risk affordability.
Risk education. Risk choices.
I loved the game of Risk, but too bad it wasn’t about money instead of armies and conquerors.
You need to know the law because certain stock market investments would not be protected by bankruptcy law. And these laws are different from state to state
Confidence in a person’s income stability is probably the cause of this downturn..
I saw this coming. As a member of this generation (20 Years Old) I think the main problem is LACK OF EDUCATION. I was taught nothing in school about personal finance and was so interested in it myself I taught myself through books and online.
But for the average person my age. There is NO education being taught on it, and with the only “event” we have seen in the stock market being the major recession in 2009, I understand why we would be hesitant to invest.
Totally agree, I’m a recent college grad and I’m shocked at how little we are taught about personal finance. I was never taught about credit ratings, 401ks, investing, ANY of that. If you’re not a self starter in regards to finance, or had parents that taught you, I imagine most kids get done with college/highschool and are in the dark regarding personal finance.
I wonder if this is a contrarian indicator for getting long the stock market and there is so much cash. I’m bearish myself don’t think the stock market is going anywhere. Therefore, I am saving all the cash I can.
Sam
How about no TRUST and horrible FEAR for reasons of not wanting to LOSE your retirement that is a lifetime achievement? Look at the chart before the crash that crippled the world’s economy. Now, look at the steady decline of investors after 2008. After all the cheating by our financial institutions, why would anyone want to invest in other people. I personally would never trust ANYONE in finance with my money.
You stated: with the only “event” we have seen in the stock market being the major recession in 2009, I understand why we would be hesitant to invest.
The S&P 500, which is a good indicator of the stock market, went from about 700 around March of 2009 to about 2800 today. I would consider that to be a major event. Did you not see that in the graph provided above?
It seems like when many people see a graph of the S&P 500 from say 2006 to now, they see the drop from the 1500s in 2007 to a low of around 700 in 2009, but they fail to notice that it is now all the way up to about 2800. They talk about it like it just dropped to 700 in 2009 and stayed there ever since. If anything, the graph from 2006 to now should be a source of confidence rather than fear.
A very key point is that any money you have invested in the stock market should only be money that you won’t need to spend for many years. If you are in your 20 or 30s, that should be true of the money you are putting aside for retirement, especially if you won’t retire until you’re about 60.
“The Great Recession CRIPPLED the world’s economy”?? Total BS.
Just looking at the U.S. economy, the recession’s full negative effect was felt in 2009. The drop in the nation’s GDP? -2.5%. That’s MINUS TWO POINT FIVE PERCENT.
https://www.thebalance.com/us-gdp-by-year-3305543
The over-leveraged housing industry (based on the “bigger fool” theory of speculative investing) was hit hard, but the overall economy was not devastated.
This is complete fantasy based on your selective numbers. In 1980 only 14% of Americans owned stock. In 1990, that percentage was 32%. Today it’s around 52%. These are simply the percentages. The actual number of investors is dramatically higher given the population growth. In fact, on average the real number of Americans invested in the stock market has increased nearly every year since 1940. The advent of 401k’s, mutual funds and low cost brokerages has democratized the stock market. So, if you do not take advantage of a 401k and the tax advantages in doing so YOU are choosing to live out retirement on Social Security. No one needs a large screen TV, a new cell phone, cable TV, Netflix or a new car. Anyone making over 50k should be able to put away 3% of their income. Your premise and the headline of the article depends on misleading numbers and misrepresentations.
One of the best things you can do as a parent is to teach your children about finance. Since my kids were 5, we have played the stock market game where they picked stocks on January 1 and again on July 1 and competed against each other. In my case, I had money to allow them to invest $500 each but it could have easily been done with fake $. By the time they were 10, each had over $2500. They lost some in 2009 for sure but that was a great lesson. Today they are 22 and 26 and each puts away a few hundred a month (on less than 40K earnings). I NEVER taught them that the market was easy or rigged against them but that like everything else, it’s about research and common sense. Don’t teach people to fear the market! It’s the greatest wealth making opportunity in history.