A Nation of Stock Market Junkies

America’s relationship with the stock market is actually a relatively recent phenomenon that took off in the 1990s when technology accelerated, automated, and coalesced major policy developments that had occurred over the preceding 15 years to let Wall Street invade Main Street. In isolation, none of the events seem epically important, but the sum is greater than the parts, and the succession of events, and scope of innovation, are stunning.

In 1974, the U.S. tax code was changed to create Individual Retirement Accounts (IRAs). The launch of IRAs let people invest in stocks and defer paying taxes until the money was withdrawn at retirement. This provided many people with their first taste of investing and sent millions of investors climbing up the risk ladder. The launch of the IRA also marked the end of a bear market. The next year, in 1975, the Securities and Exchange Commission (SEC) deregulated brokerage firm commissions, ending a 183-year-old practice that had protected the profits of stock exchange members and kept investing beyond the reach of many because stock trading commissions were exorbitant. Soon, discount brokerage firms, including Charles Schwab, brought Wall Street to Main Street. To attract customers, Schwab and others dramatically lowered stock-trading commissions. Suddenly, stock trading was affordable to the middle class.

“With the sudden arrival of negotiated stock trades that were less than half the cost they had been, a major ...

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