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January 3,1975
income distribution ($9,300$20,500 income) raised its share of
the total from 12.3 percent in 1958
to 16.9 percent in 1971, reflecting
a significant broadening of stockownership among middle-income
families. The bottom half of the
population held 4.5 percent of total
stock in 1958 and 8.0 percent in 197
Wealthy individuals— the top 1
percent of the income distribution
— accounted for over one half of all
individual holdings of corporate
stock in the late 1950's, and they
still held over one half of the total
in the early part of this decade.
Their stockholdings amounted to
$397 billion in mid-1971 (market
value), compared with the $380 bil
lion held by the other 99 percent
of the population. Meanwhile, hold
ings of nonprofit institutions, cor
porations and foreigners totalled
$341 billion.
These and other findings are in
cluded in a detailed report on
stockownership by Wharton School
Professors Marshall Blume, Jean
Crockett and Irwin Friend, pub- lished in the November issue of the
Survey of Current Business. Their
study traces changes in the pattern
of stockownership over time, pri
marily on the basis of two large
stratified random samples of indi
vidual income-tax returns taken
over the past decade.
The Wharton study shows a fairly
persistent tendency, extending over
the past half-century, toward a
more equal distribution in the direct
ownership of stock. (Still, the trend
was somewhat muted in the
1958-71 period). Total wealth also
showed a decreasing amount of
concentration up to the end of
World War II, but hardly any change
thereafter. Also, income distribu
tion showed less concentration until
1945 but much more stability in
later decades; in both 1958 and
1971, for example, the top 1 percent
accounted for 7.5 percent, and the
top 50 percent for 76.6 percent of
total income.
Time trends
While the top 1 percent, with family
incomes of $50,000 or over in 1971,
practically maintained its share of
individual stockholdings with 51.7
percent of the total in 1958 and 51.1
percent in 1971, significant shifts
occurred among other income
groups. The rest of the top decile,
with 1971 incomes between about
$20,500 and $50,000, held 31.5 per
cent of total stock in 1958 but just
24.0 percent of the total in 1971. In
contrast, the next 40 percent of the
Stock vs. total wealth
The postwar difference in trend be
tween stockholdings and total asset
holdings reflects the fact that the
ownership of stock was (and is)
much more concentrated among
upper-income groups than is true
of wealth generally. (The trend is
consistent with a greater diversifi
cation of asset structure by both
upper- and lower-income groups.)
It may also reflect the increased use
by wealthy investors of other forms
of investment, such as municipal
1
(continued on page 2)
Opinions expressed in this newsletter do not
necessarily reflect the views of the management of the
Federal Reserve Bank of San Francisco, nor of the Board
of Governors of the Federal Reserve System.
bonds and real-estate holdings, to
minimize taxes in a prolonged pe
riod of rising tax rates. Other factors
have included the high returns
available in the stockmarket during
the 1950's and 1960's, and the pub
licity given to that situation by the
Wall Street community in its efforts
to attract small investors into the
market. Those efforts were success
ful, since the number of individual
stockholders rose from 12.5 million
to 32.5 million between the late
1950's and the early 1970's.
Yet with the rise of the institutions,
we have seen a decline in the indi
vidual share of total stockholdings,
from 89.1 percent in 1950 to 72.3
percent in 1973. (This includes
bank-administered personal trusts,
which remained constant at about
10 percent of the total throughout
this period.) The decline reflects
both the rapid rise in assets of
financial institutions (such as pen
sion funds) and the increased
proportion of their assets chan
neled into stock investment. Over
2
time, individual holdings of all
sizes have been replaced by a much
smaller number of large institu
tional holdings, while a large num
ber of new (generally small) stock
holders have acquired shares
through reductions in holdings of
large individual investors. The
Wharton study comments, "Since
institutions have not played an
active role in corporate affairs, and
small individual investors have
tended to be less active than large
investors, managerial control of U.S.
corporations may have been en
hanced over this period."
Large vs. small
Not surprisingly, the study shows a
more conservative investing atti
tude by small stockholders than by
large stockholders. Lower-income
portfolios have been concentrated
much more in mutual funds and
New York Stock Exchange issues,
and among the latter, concentrated
more in telephone and utility
stocks. The widows-and-orphans
label apparently still holds. On the
other hand, upper-income investors
have been more likely to hold stock
with higher price-dividend ratios.
This tendency is consistent with the
greater tax advantages to highincome individuals of stock with
low dividend payout and high earn
ings retention.
More surprisingly, however, lowerincome groups have generally real
ized just as high a rate of return
(dividends plus capital gains) as
have higher-income investors. This
tendency was evident both in 1970
72 and in the decade-earlier
period.
Also surprisingly, portfolios of
higher-income groups have been
just as poorly diversified as those of
lower-income investors, although
the former of course own substan
tially more stock on the average.
One possible reason for upperincome individuals to hold an un
diversified portfolio would be the
hope of realizing extra returns from
superior security analysis— although
the Wharton authors wryly note
that only exchange specialists and
(occasionally) corporate insiders
outperform the market consistently
over long periods of time. An alter
native explanation may be the
desire by individuals to maintain
control over firms by concentrating
holdings in particular securities. (In
closely held firms, it may make
more entrepreneurial than invest
ment sense to concentrate hold
ings.) For whatever reason, it
appears that investors in all income
categories assume greater risks than
necessary through lack of diversi
fication.
Bear-market implications
This lack of effective diversification
has important consequences during
bear markets, such as we have expe
rienced since the 1971 survey date.
Given this situation, in a major mar
ket downturn a large proportion of
all investors w ill do much worse
than the market. Thus, with the
market value of NYSE stock drop
ping about 46 percent from its
early-1973 highpoint, millions of
investors in all income categories
must have experienced severe
losses.
Another likely consequence of the
bear market is a decline in the con
centration of wealth, inasmuch as
stock constitutes a much larger part
of the assets of upper-income than
lower-income groups. In contrast,
little if any change would be ex
pected in the distribution of in
come, partly because dividend
income (unlike stock prices) has not
been depressed, and partly because
of the influence on income of
labor-market and other factors.
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BANKING DATA—TWELFTH FEDERAL RESERVE DISTRICT
(D ollar amounts in m illions)
Selected Assets and Liabilities
Large Commercial Banks
Loans (gross, adjusted) and investments*
Loans (gross, adjusted)— total
Security loans
Com m ercial and industrial
Real estate
Consumer instalm ent
U.S. Treasury securities
A m ount
O utstanding
1 2 /1 8 /7 4
Change
from
1 2 /1 1 /7 4
Deposits (less cash items)— to ta l*
Demand deposits (adjusted)
U.S. G overnm ent deposits
Time deposits— to ta l*
States and p o litica l subdivisions
Savings deposits
O ther tim e deposits:):
Large negotiable CD's
86,656
68,183
1,839
24,557
19,999
9,815
5,429
13,044
83,374
22,939
791
57,987
6,932
17,957
29,525
16,602
Weekly Averages
of Daily Figures
W eek ended
1 2 /1 8 /7 4
O ther securities
+
+
+
+
+
+
—
4
-
4
-
—
+
+
+
+
+
+
Change from
year ago
D o lla r
Percent
597
585
74
353
19
40
92
104
976
636
440
956
829
13
195
92
9.84
+
+ 13.89
+ 32.49
+ 16.84
+
9.44
+
8.36
+ 7,763
+ 8,313
+ 451
+ 3,539
+ 1,725
757
834
+ 284
+ 9,194
+ 1,104
—
26
+ 7,835
91
+ 424
+ 6,872
+ 5,738
4
-
13.32
2.23
12.39
5.06
—
3.18
15.62
1.30
2.42
+ 30.34
52.82
—
W eek ended
1 2 /1 1 /7 4
—
+
4
4
4
4
4
Comparable
year-ago period
Member Bank Reserve Position
Excess Reserves
Borrowings
Net free (4-) / Net borrow ed ( —)
-
4
233
237
50
26
24
+ 1,368
+ 1,761
+ 1,653
+
+
+
-
-
35
166
131
Federal Funds— Seven Large Banks
Interbank Federal fund transactions
Net purchases (4-) / Net sales ( - )
Transactions of U.S. security dealers
Net loans (4-) / Net borrowings ( —)
970
879
180
■"Includes items not shown separately. {In d ivid u a ls, partnerships and corporations.
Information on this and other publications can be obtained by calling or writing the
Administrative Services Department, Federal Reserve Bank of San Francisco, P.O. Box 7702,
San Francisco, California 94120. Phone (415) 397-1137.
@FedFRASER