When Ordinary People Entered the Market
For most of the stock market's history, it was a domain restricted to the wealthy. Buying stocks required substantial capital, a relationship with a broker, and access to information that was largely controlled by insiders. The transformation of the stock market into a place where ordinary people invest their savings happened gradually, through a combination of government policy, financial innovation, technological change, and cultural shifts. The history of retail investing is a story of barriers falling one by one until a teenager with a smartphone could buy a fractional share of Apple during a lunch break.
The First Mass Participation: Liberty Bonds
The first time ordinary Americans participated in securities markets on a large scale was during World War I. The U.S. government needed to finance the war effort and turned to the public through a series of Liberty Bond campaigns beginning in 1917. The bonds were marketed aggressively through patriotic advertising, celebrity endorsements, and community-based campaigns. The minimum denomination was $50, making them accessible to working-class households.
Approximately 20 million Americans bought Liberty Bonds, out of a total population of about 103 million. For most of these buyers, it was their first experience owning a financial security. The government created a network of distribution through banks, post offices, and workplaces that demonstrated the feasibility of mass-market securities sales.
The Liberty Bond experience created a generation of Americans who were comfortable owning securities, even if what they owned was government debt rather than corporate stock. After the war, some of this comfort transferred to the stock market. Brokerages began marketing to a broader audience, and the number of individual shareholders grew through the 1920s.
The 1920s Boom and Bust
The 1920s brought the first true retail stock market boom. Several factors converged. The post-war economy was growing rapidly. Corporate earnings were rising. Radio and newspapers made financial news accessible to a broad audience. And brokerages actively solicited retail customers, opening branch offices across the country and promoting stock ownership as the path to wealth.
Margin lending made the market accessible to people with limited capital. An investor could buy $1,000 worth of stock with just $100 of their own money, borrowing the remaining $900 from the broker. This leverage amplified both gains and losses. During the bull market of the late 1920s, margin buying created the illusion that everyone was getting rich in the stock market.
The crash of 1929 shattered that illusion. Small investors who had bought on margin were wiped out as stock prices fell and brokers demanded more collateral. The losses were not just financial. The psychological damage of the crash created a generation of Americans who associated the stock market with gambling and ruin. Stock ownership among individuals declined sharply and did not recover to 1929 levels for decades.
The Post-War Recovery
Stock market participation by individuals revived slowly after World War II. The New York Stock Exchange launched its "Own Your Share of American Business" campaign in 1954, seeking to attract retail investors back to the market. The campaign emphasized that stocks were ownership stakes in real businesses, not gambling chips.
Charles Merrill, co-founder of Merrill Lynch, was the most important figure in bringing the stock market to ordinary Americans in the post-war era. Merrill transformed his firm from a Wall Street partnership into what he called "a department store of finance." He opened offices in small cities and suburbs. He trained his brokers (whom he called "account executives") to provide financial advice rather than just execute trades. He published research reports for retail clients. He insisted on transparency about commissions and conflicts of interest.
Merrill Lynch's approach worked. By the early 1960s, the firm had more than 150 offices across the country and served hundreds of thousands of individual clients. Other firms followed Merrill's model, and the number of individual shareholders in the United States grew from approximately 6.5 million in 1952 to 20 million by 1965.
Monthly investment plans, which allowed investors to buy small amounts of stock at regular intervals, lowered the capital barrier. The NYSE promoted these plans as a way for ordinary workers to accumulate stock over time, a concept that would later evolve into dollar-cost averaging and automatic 401(k) contributions.
The Discount Brokerage Revolution
Before 1975, brokerage commissions were fixed by the NYSE. Every broker charged the same rates, which were high by modern standards. A round-trip trade (buy and sell) on 100 shares of stock might cost $100 or more in commissions. These fixed rates protected brokerage profits but limited access for small investors.
On May 1, 1975, known on Wall Street as "May Day," the SEC abolished fixed commissions and introduced negotiated rates. The immediate effect was a decline in commission rates for institutional investors who could negotiate volume discounts. But the more lasting effect was the creation of the discount brokerage industry.
Charles Schwab founded his discount brokerage in 1971 but did not begin operations until after May Day made discounted commissions legal. Schwab offered basic trade execution without the research, advice, or handholding of full-service firms. By stripping out those services, Schwab could charge a fraction of what Merrill Lynch or Dean Witter charged.
Other discount brokers followed. Quick and Reilly, launched in 1974, and Olde Discount (later absorbed into Ameritrade) offered similar low-cost execution. Commission rates for retail investors began a decades-long decline. A trade that cost $100 in 1970 might cost $30 at a discount broker by the mid-1980s, and costs continued to fall.
The 401(k) and the Ownership Society
The Revenue Act of 1978 created Section 401(k) of the Internal Revenue Code, and the first 401(k) plans were established in 1980. The implications for retail investing were transformative. For the first time, millions of workers were making investment decisions about their own retirement savings. Most had no background in finance and little understanding of stock markets. But every paycheck, a portion of their earnings went into a retirement account invested in mutual funds.
The number of 401(k) participants grew from essentially zero in 1980 to over 60 million by the mid-2020s. Individual Retirement Accounts (IRAs), created in 1974 and expanded in 1981, added another channel for retail investment. Between 401(k)s, IRAs, and taxable brokerage accounts, stock market participation among American households rose from roughly 20% in 1983 to over 55% by the late 1990s.
This shift was not without consequences. The responsibility for investment decisions moved from professional pension managers to individuals, many of whom were ill-equipped for the task. Studies consistently showed that 401(k) participants made predictable errors: investing too little, trading too frequently, chasing recent performance, failing to diversify, and keeping too much money in their employer's stock.
The Online Trading Boom
The internet brought the next reduction in barriers. E*Trade, originally founded in 1982 as a service for early personal computer users, relaunched as an internet brokerage in 1996. Ameritrade followed, and by the late 1990s, dozens of online brokerages offered trade execution for $10-$30 per trade, with real-time quotes, research, and charting tools available through a web browser.
The dot-com boom of the late 1990s coincided with the rise of online trading. Day trading, the practice of buying and selling stocks within the same trading session, became a cultural phenomenon. Day trading "academies" opened in suburban strip malls. Books like "The Electronic Day Trader" (1999) promoted the activity as a viable career. CNBC viewership soared as Americans watched stock prices during the trading day.
The number of online brokerage accounts grew from about 1 million in 1996 to more than 20 million by 2000. Trading volume spiked as retail investors, empowered by cheap execution and real-time information, traded more frequently than ever before.
The bust that followed the dot-com bubble was painful for retail investors who had concentrated their portfolios in technology stocks. Many day traders who had quit their jobs to trade full-time discovered that consistent profitability was far more difficult than the bull market had made it appear. Academic studies later confirmed that the vast majority of day traders lost money.
The Mobile Era and Gamification
The 2010s brought another transformation: the smartphone brokerage. Robinhood, founded in 2013 and launched to the public in 2015, offered commission-free stock trading through a sleek mobile app. The app's design emphasized simplicity: a few taps to buy a stock, confetti animations celebrating trades, and a social feed showing what other users were buying.
Robinhood attracted millions of young, first-time investors. The company made money primarily through payment for order flow (PFOF), selling its customers' orders to market makers who executed the trades. This business model, pioneered by Bernie Madoff in the 1980s (in his legitimate market-making business, separate from his Ponzi scheme), was controversial. Critics argued that PFOF created a conflict of interest, as the broker profited from routing orders rather than from serving the customer's best interest. Defenders noted that PFOF enabled commission-free trading and that retail investors received execution quality that was generally competitive.
The established brokerages responded. In October 2019, Charles Schwab announced that it was eliminating commissions on online stock trades. TD Ameritrade, E*Trade, and Fidelity followed within days. The commission, which had been the primary cost of retail investing for two centuries, went to zero.
Fractional shares further lowered the barrier to entry. Brokerages including Schwab, Fidelity, and Interactive Brokers began allowing investors to buy fractions of shares, meaning that an investor with $10 could buy 0.04 shares of a $250 stock. The minimum investment for owning a diversified stock portfolio dropped from thousands of dollars to essentially nothing.
The GameStop Episode
The most vivid illustration of retail investing's transformation came in January 2021, when users of the Reddit forum r/WallStreetBets organized a buying campaign in GameStop (GME), a struggling video game retailer whose stock was heavily shorted by hedge funds. Retail investors, many using Robinhood and similar apps, bought shares and call options in massive quantities, driving the stock from under $20 to a peak of $483 in a matter of days.
Several hedge funds, particularly Melvin Capital, suffered enormous losses on their short positions. Melvin Capital received a $2.75 billion emergency investment from Citadel and Point72 to remain solvent. Robinhood, facing margin requirements it could not meet from its clearing firm, restricted purchases of GameStop and several other stocks, triggering outrage from its users and congressional hearings.
The GameStop episode demonstrated the collective power of retail investors in the social media age. It also highlighted the risks. Many retail investors who bought GameStop near its peak suffered severe losses as the stock eventually declined. The episode raised questions about market manipulation, the responsibilities of social media platforms, and the adequacy of regulations designed for a different era.
The Current Landscape
Retail investing in the mid-2020s has reached a scale and accessibility that would have been unimaginable to previous generations. There are more than 150 million brokerage accounts in the United States. Commission-free trading is the norm. Real-time market data, financial statements, analyst reports, and charting tools are freely available. Fractional shares eliminate the minimum investment barrier. Dollar-cost averaging can be automated through apps that round up purchases and invest the change.
Retail investors as a group now account for roughly 20-25% of U.S. equity trading volume, up from less than 10% a decade earlier. Options trading by retail investors has surged, with platforms like Robinhood making options accessible to users with little or no understanding of the risks involved.
The tools have never been better. The costs have never been lower. The access has never been broader. What has not changed is the difficulty of investing well. The same behavioral biases that caused retail investors to buy at the peak in 1929, day-trade during the dot-com bubble, and pile into GameStop at $400 remain as powerful as ever. The barriers to entering the market have been dismantled. The barriers to succeeding in it have not.
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