Pensions versus stock market holdings of US households

Two of the largest financial assets for US households are pensions and direct holdings of stocks.

Pension funds, such as IRAs and 401(k)s, tend to be less liquid, as they generally have restrictions on converting the assets to cash. Of course, they often include tax benefits and contributions from employers.

More direct participation in the stock market (either through direct holdings of corporate equity or through mutual funds) provides more liquidity, since the assets are easier to sell and convert quickly to cash.

In the FRED graph above, the blue line shows US households' pension entitlements (including IRA and 401(k) holdings) as a share of their net worth; the red line shows their holdings of stocks (corporate equity plus mutual fund shares) as a share of their net worth.^*

• In the 1950s and 1960s, stock holdings exceeded pensions.
• In the 1970s, this relationship reversed and stock holdings remained consistently below pensions for most of the time.
• In the 1990s, stock holdings began steadily increasing and have exceeded pensions since about 2018.

This trend may be related to the rise of mutual funds and the decline in trading commissions, which would lower the transaction costs in holding stocks. More recently, financial technology such as app-based electronic trading platforms and micro-investing have made it even easier for households to participate in the stock market, which likely has also been contributing to the rise of stock holdings over pensions as households' preferred financial asset.

^*The data also include the holdings of nonprofit organizations, but this is a small fraction relative to the household sector.

How this graph was created: Search FRED for and select "Households and Nonprofit Organizations; Pension Entitlements; Asset, Level, Millions of Dollars, Not Seasonally Adjusted (HNOPFAQ027S)." From the "Edit Graph" panel, use the "Add Line" tab to search for and select "Households and Nonprofit Organizations; Net Worth, Level, Billions of Dollars, Not Seasonally Adjusted (TNWBSHNO)." In the "Formula" field, type: (a/1000)/b and select "Apply" in order to adjust the units of the first series, which was in millions. Next, use the "Add Line" tab again to search for and select "Households and Nonprofit Organizations; Corporate Equities; Asset, Market Value Levels, Billions of Dollars, Not Seasonally Adjusted (HNOCEA)." From the "Edit Graph" panel, use the "Add Line" tab to search for and again select "Households and Nonprofit Organizations; Net Worth, Level, Billions of Dollars, Not Seasonally Adjusted (TNWBSHNO)." Then, also add "Households and Nonprofit Organizations; Mutual Fund Shares; Asset, Market Value Levels, Billions of Dollars, Not Seasonally Adjusted (HNOMFSA)." In the "Formula" field, type: (a+c)/b and select "Apply" Finally, adjust the time series to be from 1951-12-30 to 2024-01-01.

Suggested by Yu-Ting Chiang and Mick Dueholm.