Nuts and bolts

Public Markets' Role in U.S. Retirement Security

Public Markets' Role in U.S. Retirement Security

There is robust debate about U.S. equity market structure; perhaps too much time is spent on it.

Sadly, a lot of the debate ignores the value that is created for households by bringing private companies into the public markets, allowing U.S. households to invest in those enterprises via pensions and mutual funds.

Stock returns have outperformed

For most households, investing for a secure retirement is a long-term process. The data we show today indicate that over the very long term, stocks have outperformed real-estate and bonds significantly, despite periods of volatility.

Since 1990, public equity markets have increased roughly 16-fold, including dividends. Over the same period, the total return of bonds has increased more than five-fold, while property owners’ valuations have not yet tripled.

Chart 1: Stock returns have outstripped home prices over the longer term

Housing prices vs Equity and Fixed Income prices

That’s not to say everyone should sell their house to buy shares. The chart shows that equities are more volatile (or risky) than property, falling more (and more frequently) over shorter timeframes. But a well-diversified portfolio should not only offer more liquidity for retirement spending, but also more wealth from which to draw.

How much have investors gained?

It’s a little tricky to see exactly how and which households are invested into listed stocks. But the Fed Z.1 gives us some high level metrics.

According to their data, indirect stock holdings via mutual funds that hold stocks add up to $10.4 trillion. That’s roughly consistent with ICI’s data showing U.S. equity mutual fund holdings of about $9.2 trillion.

Fed data also shows direct investment in stocks of $15.6 trillion which likely include listed and yet to IPO companies (as well as some foreign stocks).

However looking at those household stock holdings over time shows growth from $2.2 trillion to $26 trillion over the last 28 years, although over $4 trillion reflects ownership in private companies. Interestingly, that also reflects a growth rate of 12-fold, slower than the 16-fold over-all market’s total return above. That’s likely due to accumulated investor frictions and the timing of net inflows and withdrawals from stocks, which is a more complicated math problem we’ll save for another week.

Chart 2: The value of household holdings in stocks has increased from $2 trillion to $26 trillion in 30 years

Household ownership of stocks

What’s the key takeaway?

Increasing the wealth and retirement security of all American households is important, from an economic and societal point of view. The almost a $24 trillion gain in stock holdings is important for all U.S. households, especially as the U.S. population ages and Social Security may become strained.

Today’s data highlights the importance of public equity markets in that function. By increasing investing opportunities for U.S. households and exposing them to the growth of corporate America.

To that end, it’s also important to keep public markets attractive for all investors, so private companies come to market earlier in their life.

Those are both things Nasdaq addresses in our Revitalize blueprint.

It also highlights that issuers are also important to the U.S. public market debate. In fact, they are adding the most value of all to investors.

Phil Mackintosh


Phil Mackintosh is Chief Economist and a Senior Vice President at Nasdaq. His team is responsible for a variety of projects and initiatives in the U.S. and Europe to improve market structure, encourage capital formation and enhance trading efficiency. 

Read Phil's Bio