How did people invest before the internet?

This may seem like an obvious question, or maybe even dumb.

But as my dad always says, “There are no stupid questions; only stupid people.”

Insightful man, my father.

Anyway.

It’s a question I found myself Googlin’ recently. And it wasn’t until I was two-thirds of the way finished with this post that I realized that most people a.) already knew or lived it or b.) didn’t care one bit.

Whatever. I think it’s interesting and I’m going to post it anyway.

I was recently on the phone with my grandmother, an avid MissFunctional Money reader ( 😊) and a verified Money-Savvy Lady, and we were talking about how many advantages I have as a millennial investor.

I have the world at my fingertips.

I have all the resources of Vanguard and Investopedia and Get Rich Slowly and Physician on FIRE and The Luxe Strategist and on and on and on the list goes.

It’s like the meme:

Meaning, how did people function when the world’s information wasn’t a search query away?

And that has me genuinely asking: How did people invest before the internet? Like, what were the logistics on that?

I got the answer from a combination of online research and talking to my mother, who, in addition to being the world’s best parallel parker and my #1 cheerleader in all areas of life, worked for the state treasury back in the day, just for some context.

SC: Did you just call Vanguard and say, “Hello please, I’d like to invest my money in the stock market?”

Mom: Well pretty much, you’d use something like Merrill Lynch, Goldman Sachs or others like those. You’d essentially meet or call a broker to get a quote, and you’d mail them a physical check, or do a wire transfer of money.

SC: So, you just had to trust the broker to be smart enough to beat the market? Like you just had to accept that they’d make the best choices?

Mom: Toby, get off me, I do not want your slobber.

****Of note: Toby is our heathen dog, not the name of my father.****

Mom: Pretty much. You’d get like, quarterly reports, it wasn’t like they could just do whatever they wanted.

SC: Dang.

Mom: And, at least around here, there was much more investing through your local bank. Like through CDs. Rates were actually pretty good back then, and so it was a safe way invest — low risk. Lots of people did CDs.

SC: Plus you couldn’t lose any money with a CD.

Mom: DOG! CALM DOWN! Heavens.

SC: Return isn’t as big now for CDs.

Mom: Right, and I don’t know everything so definitely double-check me, but for those CDs, your money was FDIC-insured up to $100,000 per account. At the time, the state of South Carolina couldn’t invest in the stock market with pension funds and the like; just bonds. Now they can.

****Note: I think that number is $250,000 now.

Mom: Toby, stop.

Mom: Toby, calm down.

Mom: TOBY!

****************END SCENE*****************

They relied on brokers.

Of course, using a broker meant paying fees.

In 1992, juuuustttt as the internet was just starting to emerge as a viable option for average Joe investors, a full-service broker could charge a 2.5% commission for a stock trade.

That meant the purchase or sale of a hundred shares of corporate stock could cost you a couple hundred dollars.

I like the way that Michael Kitches puts it:

“... the reality is that before the internet, the average investor didn’t have the tools to know that so many actively managed mutual funds underperformed their benchmarks, and how to select which were the few funds that were actually good. Instead, most investors could only look at quarterly statements, or the Wall Street Journal’s pages of stock prices, and figure out that they had “made money” because the investment was up. But not actually whether it was up more or less than it should have been, given peer comparisons.”

Pre-internet, there was a whole lot of room for dishonesty, mistakes and undetected bad choices. With the internet came a whole wide web of information, a higher level transparency, a greater sense of control on the consumer end, and YouTube videos of baby elephants falling over.

When the internet emerged, investors like you and me could actually do real performance benchmarking — AKA identifying how well a mutual fund was actually performing, comparing costs and seeing what was clearly in the tank.

Another countermeasure to high fees in the post-internet world?

More passive funds. Less actively managed funds.

So wait, what’s the biggest difference now than pre-internet?

More transparency
More control
(Option for) less fees
Lower cost of entry (you don’t have to have as much to start investing)

To me, this seems to pose an interesting paradox.

Millennials should feel more empowered than any previous generation, right?

When it comes to investing, we have the most resources available, more convenient options and less barriers for entry.

Heck, you can invest as little as $5 with apps like Acorns. It’s not the right option for everyone, but just on principle, we have less holding us back than our predecessors.

Our parents or grandparents may have felt more intimidated by the stock market. For grandparents, they had to experience the aftermath of the 1929 crash, or at least hear about it often. Many of our parents lived through Black Monday in 1987, the dot com bubble burst in the early 2000s and, of course, 2008. (RIP, yikes.)

So wouldn’t it make sense for them to be scared of the stock market?

But studies find that millennials, who emerged on to the job market and around the time of the 2008 crash, are pretty shell-shocked — and relatively conservative when it comes to investing.

This Bloomberg article that says 2009’s Great Recession left scars on millennials that have yet to heal:

“Young adults who started investing with Vanguard after the financial crisis are more than twice as likely to hold no stock as those who began investing before the crisis struck. Indeed, almost a fifth of millennial investors had no money in equities, and thus are missing an opportunity to take advantage of the multiyear bull stock-market run.”

Here’s the Vanguard white paper on “Risk-taking across generations” that Bloomberg used to pull that information.

And here’s an article that says millennials (in general) are more scared of investing in the stock market than previous generations. We’re saving more, yes, but not investing.

“Three in 10 millennials say cash is their favorite long-term investment, while each successive generation lays claims to stocks – a third of Gen Xers, 38 percent of baby boomers and 44 percent of the Silent Generation.”

And you know what?

Saving is good.

On this blog, you’re never going to read that saving is bad. It’s something allllll y’all should be doing aggressively as we face another potential economic dip.

But I just find the psychology of it all incredibly interesting.

Aligning millennials and the emotional scarring of the recession with the WWII generation (often called “the Greatest Generation”) and their investing mentality is FASCINATING.

Both groups largely identify as financially conservative.

Those people grew up during The Great Depression. They’re the ones that save for a rainy day, know what it’s like to go without and never throw away a plastic container when the sour cream is finished (bad example, I do that too).

And these “experts” say millennials show similar tendencies. Weird.

FYI, the same report names Gen X as more risk tolerant.

I’m no expert on this, but like I said, I think the psychology of it all is interesting and I want to do a lot more reading on it. Because to me, it would make sense if my generation were the most gung-ho, no-holds-barred, stock-savvy one yet.

The rationale behind most of these reports is that millennials are still drowning in student debt, for starters, are more scared of financial instability/losing a job, and don’t exactly have a ton of capital to throw around because wow, I beg your pardon, rent cost how much?

I’m not really here to debate who is in the right or wrong, I just think it’s all thought provoking. I mean, there are entire areas of study dedicated to this.

Is this sociology?

I only took three minutes of a sociology class once in college, and that is a totally different story for another day.

A pretty good one, actually. Maybe I’ll write that post next.

SUM IT UP ALREADY:

Millennials have more tools than ever before.
That doesn’t necessarily mean we’re down with a ton of risk.
(In other words, knowing what an ETF is and knowing how the stock market will perform are two pretty different things. Hint, nobody knows that. We may be able to access — and understand at some level — live performance reports for investments, but that doesn’t necessarily make us willing to risk it all with money we just might not have.)
The internet is wild, but it’s in our favor when it comes to investing. Without the internet, I wouldn’t get to panic several times a year when I forget my log on password for Vanguard have access to review my current Vanguard holdings day or night.
Without the internet, I also wouldn’t have this:

The internet has demanded more transparency, which is always a good thing when it comes to money. And that gives me weird feelings of duty. It’s like our forefathers have worked too hard to establish systems and deliver these resources for me to NOT try to tackle investing and come out on top. I can learn how to invest. It may not come naturally, and it may not be delightfully entertaining and engaging, but it is DEFINITELY doable.

(Or maybe there’s too much Hamilton soundtrack in my life maybe? It’s that. It’s definitely that.)

OK — a lot of my readers invested before the internet: Tell me how different it was in the comments. Do you like having more access now? Do you feel more empowered? Or maybe just more inundated?