Maureen and Hank Dernbach opened the first Maureen's Kitchen in Smithtown, New York about 17 years ago. A few years ago, thanks to a strong economy and healthy portfolio, the Dernbachs cashed in all of their investments, used all of their savings, and upgraded to their new location. Fortunately for them, business was good and the bull market kept running. They managed to rebuild their personal portfolios within a few years of putting it all in to their new location. Not so anymore. Last year's market downturn has left the Dernbachs, many of their customers, and a lot of Americans feeling blue.
Market performance is only one reason why so many Americans are feeling the pinch. Another significant factor is that more and more everyday people now invest in the stock market. In fact, 50 percent of U.S. households now own shares directly or through mutual funds. Twenty years ago, it was less than 20 percent. Also, in the early eighties 20 percent of trading activity was by individuals as opposed to institutions. By the early nineties, that number grew to about 30 percent.
Why the change? Corporate attitudes and the birth of the information age. According to NEW YORK TIMES columnist Floyd Norris, companies in the eighties changed their funding of pension plans and forced employees to take responsibility for their own retirement. The result? Employees began investing their money and 410k plans were born, bringing more and more investors into the market. Also, with the advent of the Internet and online trading, investing has become faster, easier, and cheaper, allowing people to manage their own investments. Combine that with unprecedented market strength, and everybody wants a piece of the game.
This was no problem with the market being on the up and up for nearly the past two decades. Last year, according to J.P. Morgan, American households lost between 2 and 3 trillion dollars in market wealth last year. How much you lost depended on how long you've been in the market and what you invested in. Recent players invested in specific areas lost the most, with long-term veterans holding diversified portfolios losing the least, especially when compared to previous market declines.
Americans still have faith in the market. Brandon Kline, who works in Maureen's Kitchen, has only been in the market for two years and feels that the downturn is good, allowing him to buy more shares. "I'm not scared at all about it." says Kline "In the long term, it will just turn around and be more beneficial to me." Perhaps Brandon is right, given the fact that the stock market has returned 11 percent on average per year over the past century. The future remains to be seen, but as Maureen Dernbach says, "In tens years from now it will go up. It goes down. It will go up." There is no certainty to Maureen's outlook, but one thing is for sure: a lot of Americans are hoping she is right.