Americans age 55 and older have a large and growing share of stock ownership, and that could prove a big problem for the market in the event of a recession.
According to an analysis of Federal Reserve data by Rosenberg Research, the share of stocks held by people at or near retirement age (55+) has risen to about 80%, up from 60% twenty ‘Years ago. And Americans age 70 and older now hold an “astonishing” 30% share.
“As the stock market hits new highs, an ominous downside risk lurks in the shadows: your grandmother,” economist David Rosenberg said in a newsletter Wednesday.
Why should we care that retirees own so much of the stock market? The concern stems from the fact that older investors cannot weather a recession in the same way as younger investors, who tend to have longer time horizons for their investments.
The S&P 500 Index hit a new all-time high earlier this month, and the index is up 22% over the past year. If the stock market takes a dip, older investors may decide it’s a good time to sell stocks and move into less volatile investments like bonds or cash.
Older Americans own a larger share of the stock market
At the end of 2019, the share of stock ownership among Americans aged 55 and older was lower, at about 75%. Ten years ago it was about 70% and 20 years ago it was only about 60%. This growth is a potential problem for the health of the market.
“Retirees do not have the luxury of buying and holding during a market downturn,” Rosenberg wrote. “If a recession materializes, demographic-induced selling is a force that could powerfully exacerbate the spiral.”
The idea is that Americans who are close to retirement age are more likely to sell stocks or even exit the market altogether if their portfolios start to take a hit because they will want to make sure they have enough money in retirement. This behavior could make a fire sale worse.
As the share of ownership by older Americans has increased, there has been a decline in the share of stock ownership by people aged 40 to 54. It now stands at about 15%, down from 20% a decade ago and about 30% in 1990, according to the survey. relationship.
Keep in mind, however, that individual investors are not the only stockholders. In fact, according to Fed data, institutional investors own the majority of shares in public companies. So, while it’s true that retirees have a strong influence on the stock market and that their behaviors are therefore important to understand, they’re not the only big players either.
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