A report by CNET News on the growth of individual investment on Wall Street says that assets in individual accounts totalled $1 trillion in the first quarter of 2000, compared with a total of $4.73 trillion for open-ended mutual funds.
According to International Data Corporation, the number of individual investors' online brokerage accounts is expected to surge to 28.7 million by 2003, worth a combined $3.5 trillion. This is up from 12.7 million online accounts worth $875 billion in 1999.
Wall Street has made it far easier for individual investors to trade stocks in the last few years, opening up access to techniques and investments which would once have been the preserve of brokerages and institutions. Small-scale investors are now able to buy stock in initial public offerings, trade during after-hours sessions, and access detailed securities information.
How far this is due to the threat from ecn's and the Internet in general, and how far it simply reflects growing wealth and sophistication on the part of individual investors, or the almost universal 401K, is hard to judge. But the impact of 'people-power' on the market has probably been beneficial, leading to greater transparency and, in the view of many commentators, greater stability at times of crisis.
Recently the SEC took a further step towards equality for individual investors and professionals, by requiring companies to disclose market-moving information publicly, rather than selectively, to influential analysts or institutional investors.
Also helpful for smaller investors will be the decimalisation of stock prices due to take effect on 5th september, at least on the main market, although the Nasdaq will take longer to make the change. It is likely that bid and offer spreads will shrink as a result.
Online brokerage firms have probably driven much of the growth in individual investment, allowing smaller and cheaper trades than 'legacy' brokerages, and extending trading hours after the market closes. Leading e-broker Charles Schwab recently extended pre-opening trading to individual investors in addition.
The changes that have already taken place to the pattern of individual investment, great though they are, are probably as nothing compared to what the Internet will bring in the next five years. Individual investors will have access to, and knowledge about a very wide range of global assets. Equities, bonds, derivatives, real estate and many other asset classes will have to fight it out for the favours of the individual investor, and it is at least arguable that indivual investment will come to dominate the markets in the way that institutional investment has done for the last 25 years.
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