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Turning Savers to Investors: A History of Investing

How an entire culture of savers gave way into one of investors

Scott Burns


I had a fascinating conversation recently with a winner of the Morningstar European Fund Manager of the Year awards. The man, who was German, told me, “Scott, you don’t understand. Germans are savers and they will never become investors!” He was emphatic about it, and I didn’t quite have a plausible retort.

The Search for Answers

The idea that an entire culture of people could be locked into their savings accounts against the long-term value of investing was such an unacceptable outcome that I searched for a plausible denial for weeks.

Finally, it occurred to me that the cultural conversion from “savers” to “investors” was not unprecedented. In fact, it happened quite recently and right in my own backyard.

Think back to the United States in the 1980s. It was a world inhabited by my grandparents and others in the “greatest generation.” They were as stingy, risk-averse, and saver-prone as the Germans my friend spoke of—and perhaps even more so. But then, something nearly miraculous happened, and an entire culture of savers gave way to a culture of investing. Let’s look back at America’s history of investing.

The Great American Investing Miracle

I think it is safe to say that America in the early 1990s was a culture of savers, consisting of risk-averse folks who preferred to keep their money in bank products and heavy purchasers of insurance. Those that had the right jobs had pensions for their savings, and those that didn’t planned on Social Security. Fund ownership was miniscule in terms of household assets. Equity investing was reserved for all but the very wealthy and the rare speculator.

But between 1991-93, those savers turned into investors. It happened, more or less, overnight. In fact, as best as I could ascertain, over half of all 401(k) assets were invested in equities by 1995. That’s quite a sudden shift that no one today ever seems to consider or question.

So how did this change occur in America’s history of investing in a span of a few years? If we can find the answer to this, then we might figure out the way to turn those conservative Germans (or Japanese, Singaporeans, Indians, etc.) into investors.

Now, bear with me. This is a philosophical discussion that is heavy on speculation and hypothesizing, though light on data. Still, the thought exercise has a lot of value.

Time Traveling to 1991

Put yourself into the shoes of the average investor in 1991. The stock market was terrifying. The average investor had just lived through the crash of 1987, the crash of 1989 (which was the worse of the two), the S&L collapse, and a rash of corporate bankruptcies.

The economy was in the tank throughout much of the early 1990s. The idea of the 401(k) was just starting to find its stride after some clever accountants figured out they could unburden companies from their underfunded pension situations.

I think you’d agree that 1991 was a rough time to choose investing over saving. This makes the miracle even that much more miraculous.

So I’ll ask again, how did this happen? (This is the part where you are supposed to stop reading and start thinking about possible answers.)

In my next post, I’ll explore some of the responses I got from folks in the industry.

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