In fact, the largest chunk is doing one thing — helping people retire.
In a white paper, Steven Rosenthal and Lydia Austin of the Tax Policy Center broke out exactly what sort of investors own the stock market. They found that a majority of corporate stock is owned by different types of retirement plans, the largest being IRAs and defined benefit plans.
Of the $22.8 trillion in stock outstanding (not including US ownership of foreign stock and stock owned by “pass-through entities” such as ETFs), roughly 37% was owned by retirement accounts, the largest of any type of holder.
Rosenthal and Austin’s main focus was the precipitous decline of taxable investment accounts. In 50 years, the amount of stock owned by individual investors and funds outside of retirement and non-taxable accounts such as 529 college savings plans has dropped off a cliff from over 80% in 1965 to around 25% in 2015.
“After adjusting the data in several important respects, we estimated that taxable accounts held only 24.2 per cent of C corporation equity in taxable accounts in 2015,” said the researchers. “Our exercise revealed that the share of U.S. stocks held by taxable accounts declined sharply over the last 50 years, by more than two-thirds.”
The other startling finding was the growth in foreign investment in the US stock market. What was once a small sliver of the make-up, it now accounts for a quarter of all stock ownership at $5.5 trillion. Part of this may be due to increasing wealth in foreign countries, but also as the researchers noted, corporate inversions in which foreign-domiciled firms have large direct holdings of US-based stock.
Other significant chunks were owned by insurance companies ($1.6 trillion or 5.6%) and nonprofits ($956 billion, or 4.2%).