Question

In: Economics

Investing As you've read in your text, the overall percentage of U.S. citizens participating in a...

Investing

As you've read in your text, the overall percentage of U.S. citizens participating in a stock market either through individual holdings or through financial intermediaries such as mutual funds has declined since the 2008 recession. Prior to 2008, a greater percentage of Americans held stock market investments than do in 2018. This is an interesting characteristic, given the following factors:

  1. Investing in the market through savings plans, 401k or 403b accounts, individual IRAs, or similar retirement plans has never been easier given the amount of information available to any individual. Individuals can invest small amounts such as $20 and benefit from dollar-cost averaging through automatic deposits and electronic transactions such as payroll deductions.
  2. While a vast majority of Americans will be dependent on Social Security as their primary source for retirement income, the message that relying solely on SS for retirement continues to be broadcast by media outlets such as the AARP.
  3. Since 2008, the markets have rebounded significantly from their 2008 lows.
  4. Basic principles of investing are easily located on the internet, from a variety of sources. For example, see the "Index Card" resource posted in Week 5, which is a short list of fundamental investing principles.

For this discussion post, you are to state a position and present an argument related to the above state of investing by U.S. citizens today. Why has the overall percentage of Americans invested in the market decreased in the last decade? And, subsequently, what can be done about this? In your argument, which is to be supported by both textbook and outside research, delve into one or more of the primary concepts presented in this week's readings. These include the various stock market indexes, international markets, the role of the mutual fund industry, active versus passive investing, in addition to multiple other concepts.  

Solutions

Expert Solution

"After the crash of 2008, when the Dow Jones fell more than 50 percent from the end of 2007 to mid-March 2009,” Gallup notes, “the ranks of those under 35 owning stock shrank steadily for the next several years.” Even “a decade after stockholders lost trillions of dollars, younger Americans are still leery of investing their money in stocks.”

According to the poll, 52 percent of adults under 35 say they owned stocks in the seven years leading up to the crash. By 2017 and 2018, only 37 percent did. By contrast, an average of 66 percent of Americans over 35 invested before the crash, and though the share is lower now it’s still at 61 percent.

In 2007, nearly two in three American adults (65%) reported investing in the stock market, the high in Gallup's selected trend on this question for April of each year. But this percentage shrank each year from 2008 to 2013 as the effects of the Great Recession and big market losses took their toll on Americans' sense of job security, confidence in the economy and financial means to invest -- as well as their general confidence in stocks as a place to invest their money. There were modest gains in the percentage of Americans with stock investments in 2014 and 2015, but reported ownership fell back this year, possibly because of the Dow's tumultuous performance over the past year. Americans' views of stocks as the best long-term investment also dipped this year.

Middle-Class Americans Most Likely to Leave Market

Although Americans in all income groups are less likely to have stock investments now than before the Great Recession, middle-class Americans have been the most likely to flee the market. Nearly three in four middle-class Americans, with annual household incomes ranging from $30,000 to $74,999, said they invested money in the stock market in 2007. Today, only half report having stock investments. This 22-percentage-point drop is more than double the changes seen in stock investing among higher and lower income groups.


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