Like it or not, American politicians are free to trade stocks just like every other citizen, though sometimes they have greater access to non-public information, and the ability to influence laws that have a real impact on private-sector companies.
For example, among the factors putting downward pressure on Chinese stocks in recent months are U.S. export restrictions on high-powered chips and the tech used to make them. Similarly, helpful legislation also has the ability to bolster stocks: Consider the CHIPS Act of 2022, which allocates tens of billions of federal dollars to companies like Intel to help them build new chipmaking plants in the U.S.
In that light, it might seem refreshing, or at least unusual, that Democratic vice presidential candidate Tim Walz does not own a single stock. Not only that, but Walz does not own bonds or real estate, having lived in the governor’s mansion in Minnesota the past six years. Essentially, Walz has no direct ownership of any major financial assets, though he does have pensions from his years working as a teacher and his time as a congressman.
That lack of financial assets makes him something of an outlier in Washington, but among everyday Americans, his position is far from unusual.
According to research from The Motley Fool, 62% of Americans do own stocks. That’s 162 million U.S. adults, but that still leaves a substantial percentage who don’t hold equities. There are 99 million of them.
It’s unclear why Walz doesn’t own stocks. Perhaps he decided to rely on his pensions for retirement. Other Americans may have a number of different reasons for having passed up the wealth-creating engine that is the stock market. Three reasons in particular appear to be common — and if you’re among the people who have been letting one of these things keep you away from stocks, you may want to reconsider.
Image source: Getty Images.
1. Fear of losing money
The percentage of Americans who own stock has risen notably since the post-financial-crisis era, when it plunged, bottoming out at 52% in 2013.
The best explanation for that pattern is that stock market crashes scare off retail investors. They understandably come to feel that the risk of losing half or more of their investment dollars is too big to take, even if the potential rewards of investing can be substantial.
However, major stock market crashes are relatively rare. The S&P 500 has historically fallen by 30% or more about once every decade. More importantly, though, the broad-market index has always bounced back from those bear markets to recover and set new highs. In fact, it touched another all-time high just weeks ago. The dynamism of the U.S. economy has made the stock market a reliable long-term growth vehicle for investors. Over its history, the S&P 500 has achieved a compound annual return of about 9% with dividends reinvested. That’s a difficult standard to beat over the long term in any asset class.
2. They can’t afford it
Many Americans believe that they can’t afford to invest in the stock market, or that they don’t have enough money to invest to make it worthwhile.
Although it may be hard for those living paycheck to paycheck to put money into savings, you don’t need much money to get started in investing. In fact, a number of major brokerages, including Fidelity and Robinhood, will allow you to buy fractional shares for as little as $1, and with no commissions. Charles Schwab will let you buy fractional shares for just $5.
People looking for more immediate returns on their investments may want to consider dividend stocks, which pay their shareholders a portion of their profits, typically every three months. For many investors, dividend stocks offer the best of both worlds, income and growth.
3. They don’t know how
Once upon a time, investing in the stock market wasn’t so easy. In the pre-internet days, you needed to either call up a stockbroker every time you wanted to make a trade or trust your investments to a financial manager.
Nowadays, it’s as easy as downloading an app on your phone, and most major brokerages can get you set up within 15 minutes. It’s not much different than downloading a payments app like PayPal. You typically just have to prove your identity and connect your brokerage account to a funding source like your bank account.
However, setting up a brokerage account is just half the battle. You also have to make the decision to invest in something. For beginning investors, the easiest option may be to buy shares of an exchange-traded fund (ETF). These are investments that trade like stocks, but actually own entire portfolios, giving investors exposure to a diverse array of stocks. Some are index funds, which (as the name implies) are designed to track the results of benchmark indexes like the S&P 500 or the Nasdaq-100.
If you’re just starting out, a good first investment is the Vanguard 500 Fund (NYSEMKT: VOO), an S&P 500 index ETF that puts your money into all of the stocks in that broad-market index for a very small annual fee.
If you’re looking for another reason to invest, you may want to consider the perspective of a different politician. Back in 2021, then-Speaker of the House Nancy Pelosi argued that legislators should be able to trade stocks, saying, “We are a free market economy. They should be able to participate in that.”
Pelosi is right. Participating in the stock market is one of the easiest and most rewarding financial decisions you can make. It’s never too late to start, even for someone like Tim Walz.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman has positions in PayPal. The Motley Fool has positions in and recommends Charles Schwab, PayPal, and Vanguard S&P 500 ETF. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel, short September 2024 $62.50 calls on PayPal, and short September 2024 $77.50 calls on Charles Schwab. The Motley Fool has a disclosure policy.
