What is the first image that comes to mind when asked who owns the stock market? Do visions of men in suits, wearing Rolexes, vacationing in the Hamptons come to mind? But most of the stock market is owned by the average Joe. All in a roundabout way.
Who Owns the Stock Market?
Look no further than a white paper written by Steven Rosenthal and Lynda Austin for an exact breakdown of who owns the stock market. The employees of the Tax Policy Centre discovered the largest chunk of owners is doing one thing: helping people retire. Different types of retirement plans, the largest being IRAs and defined-benefit plans, own most corporate stock. These pension funds own two-thirds of the stock market (public markets) and invest the assets of the working people who make up the bottom 90%.
Interesting to Know Facts
- Traditionally, only the wealthy owned stocks.
- Over the years, stock ownership increased through 401(k) plans, making the market more accessible to many American households.
- Retirement accounts hold 37% of U.S. stocks.
- Three-quarters of shares now are held in tax-exempt accounts such as IRAs, defined benefit/contribution plans, or by foreigners, nonprofits, or others.
- Taxable accounts hold only about one-quarter of U.S. corporate stock.
- Sadly, only 51.9% of families own stock, according to the Federal Reserve’s Survey of Consumer Finances (SCF).
In the surprising report by Rosenthal and Austin, of the $22.8 trillion in stock outstanding, retirement accounts owned roughly 37%.
Sadly, the amount of stocks people hold outside their retirement and nontaxable accounts has dropped off a cliff. For proof of who owns the stock market, look no further than the decline from over 80% in 1965 to about 25% in 2015.
Where Is the Stock Market Located?
Two of the world’s largest exchanges – the New York Stock Exchange (NYSE) and the NASDAQ are in the United States. Combined, they are both worth a staggering $21 trillion.
With over 2,400 companies listed, you can find the NYSE on Wall Street. Likewise, the Nasdaq, with 3,800 companies, is in Times Square. Even though each exchange matches buyers with sellers, they do it differently.
The NYSE is a true auction house – matching the highest bid with the lowest price. A market maker is an intermediary between buyers and sellers of each stock to ensure trades go smoothly.
Contrastingly, at the Nasdaq, the buyers and sellers trade with a dealer electronically.
Electronic Communication Networks
Typically, up until the 1990s, trading was primarily done by institutional investors. However, in the 1990s, we introduced Electronic communication networks, or ECNs for short. ECNs match prospective buyers and sellers without using a traditional stock exchange. Why is this important?
First and foremost, they make the stock market accessible to retail traders like you and me. Secondly, we don’t need to go into the pit.
ECNs leveled the playing field by allowing people like you and me to interact electronically. On the flip side, they enable large institutional investors‘ anonymity in that they can hide their actions.
Building Wealth Through the Stock Market
“Wealthy people don’t own stocks because they’re wealthy; they’re wealthy because they own stocks.” If you don’t believe me, check out the Forbes annual list of billionaires. A quick look reveals that the majority made their fortunes through stock market appreciation. From Warren Buffett with Berkshire Hathaway (NYSE: BRK-B) to Bill Gates with Microsoft (NYSE: MSFT) and Sergey Brin with Google (Nasdaq: GOOG), the wealth of these billionaires is from the stock market.
A Shocking Statistic
I just read something that not only shocked but also scared me. According to a Bankrate survey, only 23 percent of millennials feel the stock market is the best place to put the money they won’t need for at least ten years.
And why is this concerning, you may ask? History shows that investing almost always pays off: Over the past 90 years, the average annual return for the S&P 500 is over 9 percent. So please, be smart and invest; don’t be like the 77% of millennials.
Can I Own the Stock Market?
If you’re unsure what to do, consider low-cost index funds, which Warren Buffet recommends. Think of an index fund as a basket of stocks with hundreds, if not thousands, of different ones inside.
What’s great is that they hold every stock in an index such as the S&P 500, including heavy hitters like Apple, Google, and Microsoft.
Index funds are one of the cheapest and easiest ways to diversify the money that you’re investing. And when it comes to investing, “the trick is not to pick the right company,” Buffet says. “The trick is to buy all the big companies through the S&P 500 and to do it consistently.”
Investing in stocks through index funds is passive because they don’t require much trading. This could save you a few bucks in the long run as you’re not paying anyone to manage your portfolio actively, especially if you know divergence trading.
Final Thoughts: Who Owns the Stock Market?
We aren’t here to offer investing advice, but I like Vanguard’s Total Market Index fund (VTI). This Index Fund gives you ownership of hundreds of companies in a single large, stable, low-fee fund run by an honest company.
Over time, this single investment could outperform over 90% of financial advisers and other funds. How great is that?
So, to answer our question, “Who owns the stock market?”. The answer can be you if you start investing and buying stocks now.
