Misconceptions About American Stock Ownership and Investing

The illusion of being an investor often misleads individuals about their true financial status and investment effectiveness.

### The Illusion of Stock Ownership: Why Most Americans Aren't True Investors
* 📈 The collective value of American publicly traded stocks has **surpassed $58 trillion**, marking a **threefold increase** over the past decade, making it the **second largest asset class worldwide**.
* 📊 Despite this growth, only **61% of households own stocks**, highlighting a significant concentration of stock ownership among the wealthy, where the **top 10% control 93% of all stocks**.
* 💼 The rise in stock ownership is largely due to the prevalence of **401K accounts** and the accessibility of trading platforms like **Robinhood**, which may mislead individuals into thinking they are **savvy investors**.
* 💳 Many Robinhood users are motivated by **debt relief** rather than genuine investment strategies, with a significant portion having **low credit scores** and **limited investment capital**.
* 🎲 The gambling mentality is prevalent among new investors, with many **diverting funds from stocks to sports betting**, indicating a **lack of realistic expectations** regarding investment returns.
* 📉 Studies show that those who perceive themselves as investors often make poorer investment choices, with women outperforming men in stock returns by **1% on average** due to **less frequent trading**.
* 🏦 The misconception of being an investor can lead to support for policies that favor **corporate interests over worker protections**, as well as increased consumer loyalty to companies owned by **shareholders**.
* 📚 Ultimately, while investing is crucial for financial growth, understanding the **true nature of stock ownership and the risks involved** is essential for building **sustainable wealth**.

The collective value of all American publicly traded stocks is now over $58 trillion. That's more than a three times increase from just a decade ago, and American public stocks are now the second largest asset class in the world, behind only Chinese real estate. These amazing returns, coupled with new technology which makes getting into the market easier than ever before, has meant that more Americans than ever are stock owners, benefiting from this strong market. Investing is the best tool for average people to build up wealth, to fund some of the most important life goals like retirement, sending their kids to college, or leaving some money behind for their children. With more people than ever benefiting from the stock market, it means what is good for investors is good for everybody. The only problem is basically everything I have just said is complete [__]. You are not an investor, but it's really important that you think you are. So, as we talked about record for the S&P, record for the NASDAQ, it's a big list, some big, some big numbers.

in terms of the number of layoffs, it's always negative and not to make light of anything that people are going through because it's very hard. But often we see companies bounce back. Okay, so the rate of stock ownership is approaching all-time highs, but those highs are probably lower than you expect. According to a Gallup survey, just 61% of households own any stock at all, either directly or through a mutual trust. This data is roughly in line with the FED estimates, which suggest that we have now surpassed the previous peak of household stock ownership that was reached just before the market crash of 2008. More people owning more stocks is great, but the problem is that these record levels have only been hit for two reasons. The first reason is that most of these stocks are held in 401K accounts, which would become far more common as old-fashioned employee pension plans slowly go extinct. This is putting the market risk in retirement onto workers, but

overall, a diversified portfolio should be safer than an employee pension scheme, which have been completely evaporated in dozens of high-profile corporate bankruptcies in past decades. This is not really a sign of households owning more stocks, though, because in the past, employer pension schemes would invest their employees' pension accounts into the market to help fund the liability. So, the only thing that's really changed is what entity is holding on to the shares. The second reason that more people own shares now is because it's become easier, thanks to low-cost or zero-commission brokerages like Robinhood. Now, that isn't necessarily a good thing. Investing should be a part of a sound financial plan, but it will not make you rich by itself. According to Robinhood's most recent filing, its average funded account had less than $5,000 invested in total. Another report published by the finance firm Stilt found that almost 43% of Robinhood

users had FICO scores below 650. A survey conducted by The Wall Street Journal found that debt relief was one of the primary motivators for using the investing app. Now, I don't want to crush anybody's dreams here, but the chance of being able to generate investment returns greater than the interest payments on high-risk consumer credit is effectively zero in the long term. There are people who get lucky, but the vast majority of these investors would be much better taking the money they are putting into Robinhood and using it to pay down their high-interest debt. If you do happen to have a consistent strategy for generating returns above the interest rate of a low credit score car loan, then you don't have to worry about those anyway because Citadel or Jane Street would probably offer you a seven-figure signing bonus. Clearly, a lot of these users are not being realistic about generating consistent investment returns; they're gambling. It's probably no coincidence that the fall in active users for Robinhood lines up almost perfectly with the

rise in active users for sports gambling apps like DraftKings, FanDuel, and the various casino offerings. A report by Bloomberg found that these investors were taking their money out of stocks to top up their accounts on these platforms, and really, they have about the same chance of hitting a five-leg parlay as they do making money on a zero-data expiry out-of-the-money call option on orange juice futures. So, the number of people owning shares for the first time is misleading at best and outright dangerous at worst. But you are probably better than that, right? You might have a buy-and-hold portfolio that you make regular contributions to. You don't have any high-interest debt, and you might even watch low-energy boomers like Ben Felix or the Plan Bagel that give realistic guidance on how to invest your money. Surely, you are an investor, right? Wrong. Statistically speaking, the only difference between you, the average person watching this video, and someone blowing up their Robinhood account is at least those

guys have a little bit of self-awareness. So, it's time to learn how Money Works to find out why you are not an investor, but it's very important that you think you are. This week's video is brought to you by Brilliant. Brilliant is an Interactive Learning platform that helps you truly understand concepts by engaging with them directly. Whether it's math, programming, or data analysis, Brilliant offers thousands of lessons designed to make complex topics more enjoyable to learn. I've recently started using their daily learning challenges, and I love how quickly I've been able to sharpen my problem-solving skills in just a few minutes each day. It's a great way to keep your brain active without feeling overwhelmed. What's great about Brilliant is you can access it on your phone, tablet, or computer, so it's perfect for fitting learning into a busy schedule. Try everything Brilliant has to offer for free for 30 days by visiting brilliant.org/howmoneyworks, and if you like it, you'll also get 20% off an annual

premium subscription. This video was actually inspired by a comment on our video about Farmland becoming the target of major investment firms. I don't want to call that particular comment out, but they said something like, Even if investors do buy up all the Farmland, it doesn't matter because we are the investors through our pensions, retirement savings accounts, or direct Holdings. This line of thinking has been used to protect investors in the past with big bailouts because if markets are allowed to suffer, then people will lose their life savings. The reality is that stock ownership in America is incredibly concentrated in the hands of very wealthy people. According to a Fed survey of consumer finances, the top 10% of Americans own 93% of all stocks. So, everybody worth less than $1.6 million is really just fighting over the scraps. Even within the top 10%, stock ownership is still incredibly concentrated, with the top .1% increasing their Holdings faster than

any other group. These people are investors as a majority of their earnings power will be derived from dividends and capital appreciation from their shareholdings. The detail is that very few of them got there by investing alone. Most of the wealth in the very highest percentiles of wealth was made through a combination of investing and either running a successful business, having a career as an extremely well-paid executive, or just inheriting their investments. There is a similar misconception that millionaires get rich by building an average of seven different sources of income. Just like the idea of being an investor can make you rich, this is based on an element of truth. It's based on an IRS report that studied households between 1998 and 2002, and it found that high net worth respondents had reportable tax income from dividend income from stocks owned, earned income from paychecks, rents from rental real estate, royalties from selling rights to use something they've written or invented, capital gains from selling appreciated

asset assets profits from business they own and interest from savings CD bonds or other lending activities. The thing is at least four out of those required the household to have money invested in the first place so they didn't really get rich from having multiple sources of income. They had multiple sources of income because they were Rich so what this means is that for the vast majority of even the most diligent investors it's better for them to focus on increasing their earnings to buy more Investments than it is to focus on hyper optimizing their investments. In the best-case scenario if you have got yourself a good job made responsible financial decisions and are consistently putting money away into an Investment Portfolio not only are you in the top five% of people but you are still a worker that happens to have some Investments. Now there are actually three reasons why it's really important for you to think otherwise. The first reason is that people that think more about their Investments tend to make worse Investments. A study by UC Berkeley found

that stock portfolios held by female investors generated annual returns of 1% higher than their male peers on average. 1% might not sound like a lot, but compounded over a multi-decade investing horizon, and that small difference could easily double or triple a portfolio size. For single men and single women, the difference was even wider at 1.44%. What was the cause of these higher returns? Women just cared less about investing, so they didn't try to fine-tune their portfolio as much as men did. There is an entire industry of market makers and prop trading firms that can only make money when there is dumb money active in the market, so there was a multi-billion dollar industry that really needs you to trade your investments as much as possible so they can pick up a few cents every time you do. The second reason is that if people think they are investors, they are a lot more receptive to pro-investment policy either from their governments or their

companies bailouts loosen investment regulations. Lighter work protections and business subsidies overwhelmingly benefit investors, often at the expense of workers. Other questionable practices, like corporate investment into single-family homes, leveraged buyouts, anti-competitive practices, and market consolidation, are surprisingly hard to push back against because lobbyists immediately bring up the fact that restricting these practices would hurt people's retirement savings. If these businesses couldn't do what they do, if people think they are investors, it's a lot easier to get support for these policies. The third reason is that people who think they are investors are better consumers. A survey of 2070 respondents conducted by the market research firm ticker found that consumers were 80% more likely to purchase from a company that they own shares in. Apple shareholders were more likely to buy an iPhone. Amazon shareholders were more likely to be prime customers. And Tesla shareholders were much more likely to drive a Tesla. It's highly unlikely that

the investment returns from these companies will cover the purchases unless you made a significant investment when these businesses were much smaller than they are today. If you buy a few Tesla shares because you believe in the vision of electric self-driving cars and you also pick up a Model 3, then you are a consumer that just so happens to also own some shares, not an investor. Companies know about this trick, and some of them even offer special deals to shareholders in the business. The Carnival Cruise Line Corporation, for example, offers shareholders discounts on trips if they own at least 100 shares in the company, which amounts to about $1,800 as of the date of making this video. They don't offer these deals because they think a few retail investors will bolster their stock price; they do it because it's effectively a loyalty program that people tie up hundreds of dollars to join. Now, the most important piece of nuance amongst all of this is that investing is still incredibly important. Go watch my latest video on the millions of people who can't afford

to retire but are being forced to anyway. to find out why and as always if you want to get these videos a daily and read some harder-hitting articles that just wouldn't do well here on YouTube sign up to my completely free email newsletter to keep on learning how money works.

You Are Not An Investor... But It's Important You THINK You Are...

Subscribe to learn about business, careers, and everything else about How Money Works.

How Money Works

The collective value of American publicly traded stocks has surged to over $58 trillion, driven by strong returns and new technology making market entry easier.

Despite the increase, only 61% of households own any stock, with record ownership levels primarily driven by 401K accounts and low-cost brokerages like Robinhood.

While more people owning stocks is beneficial, the shift in ownership from employer pension schemes to individuals raises concerns about the distribution of market risk in retirement.

The Misconception of Investing for Debt Relief

Many users of investing apps like Robinhood have FICO scores below 650, with debt relief being a primary motivator for their investment.

The likelihood of generating consistent investment returns greater than high-interest debt payments is extremely low, leading to a gambling mentality among these investors.

The shift in active users from Robinhood to sports gambling apps suggests a similar risk-taking behavior, making the notion of first-time investors misleading and potentially dangerous.

The Concentration of Wealth and Its Impact on Investing

Wealth in America is highly concentrated, with the top 10% owning 93% of all stocks.

The richest individuals often accumulate wealth through a combination of investing, running successful businesses, and inheritance.

For most people, focusing on increasing earnings to buy more investments is more effective than trying to hyper-optimize their investment portfolio.

The Impact of Gender on Stock Portfolio Returns

Female investors' stock portfolios generated annual returns 1% higher than their male counterparts, with the difference widening to 1.

This disparity in returns was attributed to women caring less about investing and therefore not fine-tuning their portfolios as much as men.

The belief of being an investor also led to increased receptiveness to pro-investment policies and made individuals better consumers, as they were more likely to purchase from companies they owned shares in.

The Relationship Between Consumerism and Investing

Investment returns from companies may cover purchases, but true investors are those who invested when the businesses were smaller.

Some companies, like Carnival Cruise Line, offer special deals to shareholders as a loyalty program.

Despite the nuances, investing remains crucial for financial stability and retirement planning.