Equity and Bond Ownership in America, 2008
In earlier volatile periods of U.S. financial markets, the main concern for most families was the impact on their earnings that resulted from the employment decisions made by business owners. Today, 47 percent of American households are equity and bond owners, so the financial market volatility being experienced as this study comes to press is also directly affecting fi financial wealth held by a much broader range of households than it did in earlier decades. Understanding the patterns of ownership across households and time, recognizing the factors that affect ownership, and analyzing the goals, strategies, and plans of the investor population have never been more essential.
The analysis in this study is based on the fourth in a series of household surveys conducted jointly by the Investment Company Institute (ICI) and the Securities Industry and Financial Markets Association (SIFMA). The latest survey was conducted between February and March 2008. It included 5,050 primary or co-decisionmakers for household saving and investing, of whom 2,359 reported owning equities or bonds. While the three previous studies focused primarily on equity ownership, the latest survey also included detailed questions about bond ownership, including “hybrid” funds that invest in both equities and bonds. The latest survey was also redesigned to gather crucial information about respondents who owned neither equities nor bonds, so that it would be possible to investigate how owners and non-owners differ.
The sampling strategy and questionnaire developed for this study were designed to accomplish a number of goals. The first goal was to create a data set that would allow—in conjunction with other ICI and publicly available surveys—an analysis of how ownership of equities and bonds in the United States has changed over time. This aspect of the analysis is the main focus of Chapter 1, and considers overall ownership rates, the extent to which investors are holding equity or bond assets inside or outside employer-sponsored retirement plans, and differences in
ownership by age across different birth cohorts. The data also provide some direct measures of investor perceptions and willingness to take risk over time.
The second goal of this research was to develop an understanding of how ownership varies across types of households. In addition to collecting data on ownership of various assets by type and location (inside or outside employer-sponsored retirement plans), the 2008 survey collected extensive demographic details about both owner and non-owner households. This is the basis for the analysis in Chapter 2, which focuses on the dominant role of household income in determining ownership, but also the marginal effect of characteristics like education,
marital status, and race/ethnicity within income groups. The characteristic most correlated with ownership (after controlling for income) is employer-sponsored DC plan coverage.
The third goal of the study involves exploring differences in investor goals, attitudes, and portfolio allocation behavior across the life cycle. Economic theory and financial planners are in general agreement about how investors’ underlying strategy and actions should evolve as they move through their working lives to retirement, and the data in Chapter 3 provide general support for these views. The aging of the Baby Boom Generation adds some import to this analysis; significant changes in population-weighted investment strategies—like a sudden shift from equity to bond ownership at retirement—could have a first-order impact on financial markets. However, the analysis here suggests that changes in portfolio behavior by age are probably too modest to have significant impact on the relative demand for different types of underlying securities.
The fourth goal of this research was to investigate how investors interact with financial intermediaries and professional advisers. Chapter 4 discusses the results from a number of questions in the survey about topics such as use of the Internet for conducting financial business and whether and how advisers are used when making decisions. There has been dramatic growth in Internet use for investment-related purposes, but investors still consider their relationships with advisers to be very important, and generally rely on them for advice when making decisions.
Revisions to the ICI/SIFMA Household Survey Methodology
The estimates in this study are based on a survey conducted in 2008 of over 5,000 U.S. households. In many ways the study design is similar to three earlier studies on equity ownership conducted by ICI and SIFMA in 1999, 2002, and 2005. However, there is one fundamental improvement in the methodology that differentiates these estimates from those earlier studies. As is usual in the course of household survey work, researchers periodically re-examine the estimation procedures used to ensure that the results published are representative of the millions of households in the United States. Accordingly, ICI and SIFMA engaged in such a process this year, and the figures presented here reflect a new weighting procedure. The new weighting procedure is consistent with the approach used by the Federal Reserve Board in their household surveys and also with ICI’s Annual Mutual Fund Shareholder Tracking Survey. The results for statistics such as overall equity ownership rates are now comparable with those other surveys; the ownership rates are not comparable to the 1999, 2002, and 2005 ICI/SIFMA studies on equity ownership. The weighting procedure is discussed in more detail in Appendix A.