I wonder to what extent this is a matter of people drawing down their holdings in order to live on them.
From the FRB's Survey of Consumer Finances, here's the distribution of stock ownership in 2007 (Total value: $4.598 trillion):
- Top 1%: 51.9%
- Next 4%: 30.5%
- Next 5%: 8.0%
- Next 40%: 9.0%
- Bottom 50%: 0.6%
- Top 1%: 46.7%
- Next 4%: 30.9%
- Next 5%: 10.3%
- Next 40%: 11.6%
- Bottom 50%: 0.4%
Retirement assets -- IRAs, 401(k) accounts, etc -- (total value $8.905 trillion)
- Top 1%: 14.5%
- Next 4%: 28.0%
- Next 5%: 16.9%
- Next 40%: 36.7%
- Bottom 50%: 3.8%
Aggregating these three categories (total value $17.595 trillion)
- Top 1%: 31.8%
- Next 4%: 29.3%
- Next 5%: 13.1%
- Next 40%: 23.6%
- Bottom 50%: 2.2%
Here are the dollars, so that the relative amounts each quantile holds in each category can be compared. Recall that the article's title speaks of "small investors."
| Holdings of Selected Assets by Net Worth Quantile, 2007 billions of dollars |
|||||||
| Total |
Bottom 50% |
Next 40% |
Next 5% |
Next 4% |
Top 1% |
||
| 08 |
STOCK |
4,597.5 |
29.8 |
412.3 |
368.7 |
1,402.1 |
2,384.6 |
| 09 |
NMMF |
4,093.0 |
15.2 |
475.3 |
423.3 |
1,266.6 |
1,912.5 |
| 10 |
RETQLIQ |
8,904.6 |
338.0 |
3,272.1 |
1,508.9 |
2,490.8 |
1,294.8 |
| 32 |
combined |
17,595.1 |
383.0 |
4,159.7 |
2,300.9 |
5,159.5 |
5,591.9 |
| distribution |
100.0% |
2.2% |
23.6% |
13.1% |
29.3% |
31.8% |
|
| 07 |
BOND |
1,070.5 |
0.2 |
16.4 |
51.7 |
333.9 |
668.2 |
| Source: Federal Reserve Board's Survey of Consumer Finances, 2007, behind tables at http://lvtfan.typepad.com/lvtfans_blog/ americas-wealth-distribution-2007-wealth-concentration-part-1- of-3.html Note: this understates the holdings of the top 1%, since the Fortune 400 families are excluded from the SCF. See Ponds & Streams. |
|||||||
Here are some excerpts from the NYT article. I wonder how "small investor" is defined. Does it mean all individuals, as opposed to foundations, pension funds, university endowments and the like? Does it mean those in the bottom 95% of the Net Worth distribution, who own just 40% of the value held by households?
Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.
If that pace continues, more money will be pulled out of these mutual funds in 2010 than in any year since the 1980s, with the exception of 2008, when the global financial crisis peaked.
Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.
One of the phenomena of the last several decades has been the rise of the individual investor. As Americans have become more responsible for their own retirement, they have poured money into stocks with such faith that half of the country’s households now own shares directly or through mutual funds, which are by far the most popular way Americans invest in stocks. So the turnabout is striking. ...
To be sure, a lot of money is still flowing into the stock market from small investors, pension funds and other big institutional investors. But ordinary investors are reallocating their 401(k) retirement plans, according to Hewitt Associates, a consulting firm that tracks pension plans.
Until two years ago, 70 percent of the money in 401(k) accounts it tracks was invested in stock funds; that proportion fell to 49 percent by the start of 2009 as people rebalanced their portfolios toward bond investments following the financial crisis in the fall of 2008. It is now back at 57 percent, but almost all of that can be attributed to the rising price of stocks in recent years. People are still staying with bonds.
Another force at work is the aging of the baby-boomer generation. As they approach retirement, Americans are shifting some of their investments away from stocks to provide regular guaranteed income for the years when they are no longer working.
And the flight from stocks may also be driven by households that are no longer able to tap into home equity for cash and may simply need the money to pay for ordinary expenses. ...
Fidelity reported that hardship withdrawals and loans from 401(k) accounts in their custody are up. But as one commenter pointed out,
Hardship withdrawals are truly an indication of economic distress.
Loans? I don't think so. When buying a new car to replace my 10+ year old car, I took out a 401(k) loan instead of going to the bank. I'd rather pay interest to myself and guarantee myself a 4.5% (or so) return on the 401(k) funds I took out.
I'll bet you that lots of people are resorting to 401(k) loans for similar reasons, and that the growth in loans has something to do with the difficulty in getting any kind of credit today.
His strategy makes sense to me. 4.5% is a whole lot more than money markets are paying, and less than one pays for a car loan.
Fidelity also reported that the average 401(k) in their custody was worth $61,800. It would be interesting to know the median value. I'm guessing it might be about 75% of the average.
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