The Cup's Half Full

By Daniel Kadlec

We sure are proud of ourselves. Technology lets us work less and do more, while the bull market lets us save less and put more away for retirement. A new study celebrates the finding that a record 48% of American households own stocks, which now account for 35% of all household financial assets, at least a 50-year high. On Oct. 29, PBS will air Stockholder Society, a special that extols the virtues of the public's widening stake in the economy. Yes, we're doing some things right.

What with lingering questions about Social Security and the demise of the traditional pension, Americans have embraced stocks as never before. The number of individuals owning stocks or stock funds has swollen to 78 million, up from 42 million in 1983. Our 401(k) accounts are bulging, and there is encouraging evidence that the masses are behaving smartly--by diversifying and holding for long periods.

But let's not get too smug. Consider that more than half the population is being left out, and if the stock market is really our ticket to retirement bliss, that must change. Individual Social Security accounts that let taxpayers direct part of their payments into stocks would be a start.

The study, conducted jointly by the Securities Industry Association and Investment Company Institute, a pair of trade groups, reveals other shortcomings as well. For example, investors make way more trades outside their employer-sponsored retirement plan than inside. That's way bad. The typical employer plan is tax-deferred, so trades aren't taxable events. Not true in most other types of accounts.

Some other observations:

--The median stock holding for those under 35 is $11,900; for those age 64 or older, $62,500. That infers abysmal yearly growth of about 5% and no additional savings over decades. Three possible explanations: today's young are saving more, pre-retirees are spendthrifts, or the elder set is shifting to conservative investments too early. My hunch is it's the latter, and that's one way to come up short in the end.

--In employer retirement plans, the typical account has 61% in stocks. Most people should have at least 70% of their long-term savings in stocks--up to 85% if you are under age 50. If you're in good health, wait at least until age 65 to scale back. With a life expectancy into the 80s, you have lots of time.

--Nearly half of all stockholders are baby boomers, the oldest of whom are just 11 years from retirement age. We're getting perilously close to the day when boomers will slow or, gads, reverse their stock purchases. When that day comes, I believe the market will enter a long period of subpar returns.

Finally, 64% of stockholders rely on advisers to tell them when to hold and when to fold--anathema to the do-it-yourself mind-set that in recent years has made online investing hotter than Martha Stewart's IPO.

That's a bigger number than I would have figured, but it squares with another ICI study several weeks ago that shows that 77% of stock-fund holders buy and sell through some sort of advice filter. Individuals now have enough wealth at stake so that it seems they are less inclined to go it alone. That may mean Merrill Lynch, down 30% from its high last April, is a better bargain than E-Trade, down 68%. Merrill is in the advice biz, which may have value after all, especially if the market continues to churn.

See time.com/personal for more on the SIA-ICI study. Dan's e-mail: kadlec@time.com He's on CNNfn Tuesdays at 11:20 a.m. E.T.