Millions of Americans normally unconcerned with the gyrations of Wall Street could be affected by Monday's dramatic price drop because of its effect on pension funds, retirement accounts and other means of indirectly investing in stocks.
"Anybody who has been part of corporate America at any level, from chief executive down to assembly-line workers, will be affected directly or indirectly," said Dennis W. Draper, associate professor of finance at USC.
The most obvious way for those who do not own stocks directly to gauge the impact of the decline may be through Individual Retirement Accounts. At the end of 1986, Americans had invested $290 billion in IRAs, and a portion of those assets were in the stock market.
"The impact on IRAs will vary directly on how the money is invested," Draper said. "A lot of people took their money and put it in (stocks), and a lot of IRA accounts took an extreme hit today."
Vast Pension Amounts
The amount invested in IRAs, however, pales in comparison to the $1.5 trillion in pension funds sponsored by private industry. Those pension funds are among the most significant institutional investors in the market and, although the pensions of 40 million Americans are not jeopardized, many companies could be particularly hard hit by the drop.
Steven R. Malin, an economist with the Conference Board, a business research organization in New York, said that many corporate pension funds were made wealthy by the runup in stock prices, and therefore the companies did not have to help fund them recently. "We may get into a situation where a company might have to make a contribution. For companies with tight budgets, that could mean (cutting) jobs."
Peter S. Voss, president and chief executive of Security Pacific Investment Group in Los Angeles, said even the 508-point drop in the Dow Jones industrial average Monday left the pension funds of major corporations healthy.
"A lot of the gain that has been earned this year got away," said Voss, whose subsidiary of Security Pacific Corp. manages $10 billion in pensions for private industry. "Even with the free fall, the funds are at the same level they were at the end of last year. They are comfortably funded."
The effect of the stock drop could be most severe for individuals whose pension payments are directly tied to profit-sharing programs, such as stock plans.
"People who are going to retire in the next few months could pay a steep price because the amounts they have been accumulating will be measured at the (latest) price of stocks," said Haskel Benishay, an economics professor at Northwestern University in Chicago.
The ripple effect of the stock drop also was felt in the real estate markets. For example, a man who was preparing to offer $375,000 cash for a vacant lot in Palos Verdes called his agent Monday morning and backed out.
"He telephoned and said, 'I lost my fanny in the market. My portfolio is shot,' " said Eleanore Macy, manager of the Merrill Lynch Realty office in Malaga Cove.