Since it bottomed out in March 2009, the S&P 500 stock index is up 98%. Over approximately the same time period, the portion of Americans that own stocks has dropped from 57% to 54% -- the lowest percentage in more than a decade, according to Gallup. What is causing this alarming trend?

Gallup surveys Americans asking whether they own individual stocks, stock mutual funds, or stocks in their 401(k) or IRA. So we aren't just talking about people playing the market: this include average Americans who might hold stocks as long-term investments. Here are its poll results for Americans who own stocks, in any form, with S&P index values charted over the same period:

stock ownership stock price gallup 2011-04.png

As you can see, stock ownership does not precisely match market activity. Indeed, Americans' ownership rate appears to lag the market a bit. They were slow to sell their stocks when the market fell from late 2000 through 2002. They also appear to be slow to ramp up their ownership starting in 2003, when a staggering bull market began. That apparent disinterest in stocks could be due in large part to money being funneled into the real estate bubble, of course. You can also see stock ownership decline as the bubble popped and the financial crisis pushed the economy deep into recession in 2007/2008.

But what's going on since March 2009? For two years, stocks have broadly risen, regaining most of the ground lost during the financial crisis. Yet Americans' stock ownership continues to decline.

Gallup blames this trend on average Americans no longer trusting Wall Street. Its chief economist Dennis Jacobe writes:

Even as stocks have surged over the past couple of years, it has been hard for most Americans to understand what is happening on Wall Street and why, leaving them hesitant to invest in the stock market.

That's one potential explanation, but where else can Americans put their money? Certainly not real estate -- its chart is much uglier over the past two years than the stock market's chart. Some may have put money in bonds, but presumably many are just using savings accounts. Having lost large sums of money when the markets collapsed, Americans have become more risk adverse.

Another explanation is possibly more obvious: many Americans are struggling right now. Unemployment remains very high, and underemployment remains near 20%, according to Gallup. As those people struggle, some have been forced to liquidate savings or investments to keep up with bills. Certainly, part of the decline in stock ownership occurred due Americans having no choice but to cash in their stocks.

Whatever the cause, this decline is scary on a few different levels. First, you can see that lots of Americans got out of the market only after the worst of the financial crisis had occurred. It appears that few returned to their previous stock ownership position when the market hit its trough. Rather than doing so as it was on its way back up, many remain out of the market even today. That money is truly lost to them now. They missed out on any gains that occurred on the stocks they sold.

Unfortunately, most of those Americans are likely less-savvy about investing and less affluent. This means that the big gains we've seen since the stock market bottomed have gone mostly to wealthier, more sophisticated investors. In other words, it's likely that wealth inequality increased due to the financial crisis. Average Americans lost money in the stock market (and real estate market!), while the already rich and savvy were there to capture the upside when the market returned.

The moral here should be clear: don't panic. Anyone who sold their stocks when the crisis climaxed in the fall of 2008 would already be back in the green if they had held on. You see a similar, though somewhat delayed, result after the earlier dip from 2000 through 2003. In the long-term stock prices have increased very consistently historically. It's better to stomach the volatility than to sell your stocks and to bet against the inevitable market rebound.

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