SIFMA Insights - Who Owns Stocks in America?

Executive Summary

SIFMA Insights

Q: Who Owns Stocks in America? A: Individual Investors A Chart Book on Stock Ownership

October 2019

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Executive Summary

Contents

Executive Summary ................................................................................................................................................................................... 4 US Retirement Assets ? Individuals Responsible for 52% ......................................................................................................................... 5 US Retirement Assets ................................................................................................................................................................................ 6 Private Pension Fund Assets ..................................................................................................................................................................... 7 Individual Retirement Accounts (IRAs) ..................................................................................................................................................... 10 401(k) Plan ............................................................................................................................................................................................... 11 Ownership of Mutual Funds...................................................................................................................................................................... 12 Stock Ownership ? Individuals Own Equities ........................................................................................................................................... 14 Households Own 38% of Equities............................................................................................................................................................ 14 ...Meaning It Is Not Just the 1% Owning Stocks ...................................................................................................................................... 15 Strong Capital Markets Enable Individual Investor Choice ....................................................................................................................... 17 Inputs into An Investment Decision .......................................................................................................................................................... 17 RRTURTL ? Risk, Return, Time, Unique, Regulatory, Taxes, Liquidity.................................................................................................... 18 Stock Market Depth and Breadth Enable Portfolio Diversification ............................................................................................................ 19 Sector Breakout for the S&P 500 ............................................................................................................................................................. 19 ETF Breakout by Region and Asset Class ............................................................................................................................................... 20 Appendix: S&P500 Sector Breakout Details............................................................................................................................................. 22 Appendix: ETF Returns & Dividend Yields ............................................................................................................................................... 25 Appendix: Terms to Know ........................................................................................................................................................................ 27 Appendix: SIFMA Insights Research Reports .......................................................................................................................................... 28 Author....................................................................................................................................................................................................... 29

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Executive Summary

Disclaimer: This document is intended for general informational purposes only and is not intended to serve as investment advice to any individual or entity.

SIFMA Insights can be found at:

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry's nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit .

This report is subject to the Terms of Use applicable to SIFMA's website, available at . Copyright ? 2019

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Executive Summary

Executive Summary

U.S. capital markets are where investors, small and large, put capital to work to drive innovation, economic growth and job creation. Our markets have long enabled businesses to grow, governments to invest in infrastructure, and individuals to save for retirement and education. The U.S. capital markets are largest in the world and continue to be among the deepest, most liquid and most efficient. U.S. equity markets represent 41% of the $75 trillion in global equity market cap, or $30 trillion; this is 3.8x the next largest market, the EU (excluding the U.K.). The diversity, depth and breadth of U.S. equities markets (all of U.S. capital markets really) enable investor choice.

In this note, we provide a chart book of ownership on U.S. stocks (and other assets). Highlights include:

? Americans Responsible for 52% of Retirement Assets. In the U.S., people build their retirement accounts themselves. 52.1% of the $34.6 trillion in retirement assets are individually funded through defined contribution pension plans, IRAs and annuities. This differs from many other countries/regions, where citizens are highly reliant on government funded retirement plans. This section breaks out retirement assets across account types and asset classes, as well as analyzes growth trends in different segments.

? Individuals Own Stocks. It is households that own equities, 37.6% of total equities in the U.S., and equities represent households' largest financial asset holdings at 38.2%. According to the Federal Reserve, 52% of HHs in the U.S. own stocks (65 million households), which shows the figure is greater than one percent of income earners (estimated at 1.6 million households). Our analysis inside this section shows that the low balance reported by the Federal Reserve ? median value of $40 thousand for a household's stock holdings ? demonstrates a much wider universe of Americans own stocks.

? Strong Markets Enable Individual Investor Choice. The diversity across types of investment products and investment focus of these products (region, asset class, style, etc.) is part of what helps the U.S. capital markets maintain a dominant global position. It is also what provides individual investors choice to manage their retirement and other savings accounts in a manner that fits their investment objectives and needs.

? Market Depth and Breadth Enable Portfolio Diversification. Investors need choice in investment products, based on different return profiles and investment objectives. They need diversity within product sets and across investment focus of these products (region, asset class, style, etc.). U.S. equites markets provide this opportunity, as shown in the S&P 500 analysis in this section.

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US Retirement Assets ? Individuals Responsible for 52%

US Retirement Assets ? Individuals Responsible for 52%

In the U.S., people mainly build their retirement accounts themselves. This differs from many other countries or regions, where citizens are highly reliant on government funded retirement plans. In the U.S., 52.1% of the $34.6 trillion in retirement assets are individually funded by defined contribution pension plans, IRAs and annuities. The other 47.9% of retirement assets are funded by federal, state and local governments, as well as by defined benefit pension plans.

We therefore point out that more Americans own stocks than one would think ? stocks are not just the privilege of the one percent.

In this section, we breakout the equity holdings across different types of retirement accounts. We also note that many retirement account assets are held in mutual funds, which are investment vehicles based on the performance of the underlying stocks (or other securities, such as bonds), and are, as such, included in the analysis.

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US Retirement Assets ? Individuals Responsible for 52%

US Retirement Assets

There are $34.6 trillion in retirement assets in the U.S. (as of 2018). Assets have grown 104% since 2004, a 4.9% compound annual growth rate (CAGR). The breakout across investment categories is as follows:

? Private pensions, 27.2% ($9.4T) o Defined contribution plans, 63.4% of total pensions or $6.0T o Defined benefit plans, 36.6% of total pensions or $3.4T

? State and local government pensions, 26.3% ($9.1T) ? IRAs, 25.4% ($8.8T) ? Federal government pensions, 11.6% ($4.0T) ? Annuities, 9.4% ($3.3T)

US Retirement Assets - 2018

Annuities, 9.4%

Govt. - Federal, 11.6%

Pension s, 27.2%

IRAs, 25.4%

Govt. - State/Local, 26.3%

Trends in US Retirement Assets ($T)

Pensions Annuities Govt. - State/Local Govt. - Federal IRAs

40

35.1 34.6

35

29.2 30.5 31.0 32.5

30

25.6

23.4 23.9

25 20

16.9 18.0 19.8 21.2 19.2 21.3

15

10

5

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Federal Reserve Flow of Funds Accounts L.227, SIFMA estimates Note: Pensions includes defined benefit and defined contribution plans held by private individuals; 403 plans are included in private pensions

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US Retirement Assets ? Individuals Responsible for 52%

Private Pension Fund Assets

There are $9.4 trillion in U.S. private pension fund assets in the U.S. (as of 2018). Assets have grown 88% since 2004, a 4.3% CAGR. The breakout across investment categories is as follows:

? Mutual Funds (MFs), 38.0% ($3.6T) o 52% of MFs are equity funds (23% bond, 17% money market, 8% hybrid)

? Equities, 25.2% ($2.4T) ? Bonds, 14.0% ($1.3T) ? Claims on pension fund sponsors, 5.8% ($0.5T) ? Cash items, 2.2% ($0.2T) ? Other, 14.9% ($1.4T)

Private Pension Assets - 2018

Other, Cash, 14.9% 2.2% Claims,

5.8%

Bonds , 14.0%

MFs , 38.0%

Equities , 25.2%

Trends in Private Pension Fund Assets ($T)

10 9

Equities

Bonds

MFs

Cash Claims 8.4 8.7 8.6 9.0

9.8

9.4

8

7.2 6.6 6.7

7 6

5.0 5.4 5.8 6.2 5.3 6.0

5

4 3

2 1

0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Federal Reserve Flow of Funds Accounts L. 118, ICI, SIFMA estimates Note: Bonds = Treasuries, Agency, corporates & foreign bonds. Cash = checking, currency, time & savings deposits; money market mutual fund shares, repo, reverse repos; CP. Claims = unfunded defined benefit pension entitlements. The Fed only defined other as miscellaneous assets

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US Retirement Assets ? Individuals Responsible for 52%

Private Pensions: Defined Benefit versus Defined Contribution Plans

Employer-sponsored private pension (retirement) plans are offered in two categories: defined contribution and defined benefit plans. A defined contribution plan is funded predominantly by the employee through pre-tax contributions, with employer contributions often offered as part of one's employment benefits package. These plans allow employees and employers to contribute and invest funds over time to save for retirement. In a defined benefit plan, the employer guarantees a specific retirement benefit (a set payment amount) to employees. The main difference between plans is which party bears the investment risks, the employer or employee.

Defined Contribution: Defined contribution plan assets (63.4% of total private pensions assets, $6.0T) have grown 113% since 2004, a 5.2% CAGR. The breakout across investment categories is as follows:

? Mutual Funds (MFs), 53.1% ($3.2T)

? Equities, 21.5% ($1.3T)

? Bonds, 6.7% ($0.4T)

? Cash items, 2.6% ($0.2T)

? Other, 16.2% ($1.0T)

DC Pension Assets - 2018

Other, 16.2% Cash, 2.6% Bonds, 6.7%

Equities , 21.5%

MFs , 53.1%

Source: Federal Reserve Flow of Funds Accounts L. 118, SIFMA estimates Note: Bonds = Treasuries, Agency, corporates & foreign bonds. Cash = checking, currency, time & savings deposits; money market mutual fund shares, repo, reverse repos; CP. Claims = unfunded defined benefit pension entitlements. The Fed only defined other as miscellaneous assets

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