Like it or not, we are all betting on AI taking over the economy. In the last 40 years, the U.S. has become a nation of stock investors. On the whole, it has made Americans rich. Now the stock market is soaring on the hopes that AI will make everyone more productive — and if that doesn’t work out, we all may learn the definition of a bad tail risk.
More than 60% of Americans own stock. For most of the middle class and lower earners, it is through workplace retirement accounts, which have boomed since the 1980s. In 1989, only about 30% of Americans owned stock. In 2007, employers started automatically enrolling plan participants in the market, often in target-date funds that put younger workers almost entirely in stock and move them slowly into bonds as they age. Some 84% of participants in Vanguard’s defined-contribution plans, representing about half of all covered workers in the U.S., are invested this way.
These retirement accounts were in many ways a triumph, mainly because they became popular right before one of the best stock runs in history. About 20% of Americans are now millionaires — at least on paper.
But stocks, even well-diversified index funds, are still risky assets. Index funds are less risky than individual stocks or sports betting. But the mere fact that they pay off is proof that they involve risk. In general, stocks go up as the economy grows; they are a bet on the future of the U.S. economy, which is increasingly dominated by technology.
Yet even a growing economy has bear markets. And the question is how the changing nature of stock ownership will change the nature of bear markets.
The U.S. now has a large, captive population of investors who not only own lots of stock no matter what happens, but they also buy more each month through their regular contributions to their retirement plans. These investors are becoming a large share of the market. In the first quarter of 2026, some $32 trillion was invested in IRAs or defined-contribution plans.
The average equity allocation in a Vanguard defined-contribution plan was 75% in 2025. Some of that is probably in foreign stocks, though Americans tend to invest domestically. Thus it is safe to assume about one-third of the $75 trillion U.S. stock market is owned by retirement investors. If Trump accounts take off, the population of passive long-term stock owners can be expected to grow. This changes the market dynamics.
There are still enough active traders to incorporate information into prices and keep the market efficient. But retirement money is often in passive funds, which may increase volatility and concentration in the stock market. This could be one reason that tech stocks went up so much.
Then there are the policy effects: With so many of their constituents exposed to the market, politicians and other policy makers have an enormous incentive to do all they can to prop it up. Keeping markets up requires lower interest rates even when the market is hot. Count me as skeptical on an AI pause, or frontier pacing.
Passive and patient retirement investors deepen financial markets, increase wealth, and may even make markets a little less prone to corrections. But they also leave the economy more exposed to stock risk, and create incentives for the government to make the economy riskier. When big events happen, they can lead to even bigger fallout.
