The market is for all! It favours no gender, age or ethnicity but only the one who understands money. Yes, you read it right! Only money makes money. To hold on to that notion, many play a gamble on their savings and try to create wealth out of that. On one hand, where more and more individuals are jumping on to the bandwagon of retail investors, on the other hand, the gap in wealth creation is becoming difficult to bridge.
To the ones who are avid USA stock market followers, this comes as no surprise that there is a widening gap in wealth creation in the USA but who knew it would be unstoppable! In a recent development, an eyeball grabbing news article highlighted that ‘the wealthiest 10% of Americans hold 89% of all U.S. stocks held by households’, implying the unparalleled role of the stock market in increasing wealth inequality.
During the Covid-19 pandemic, the top 1% added more than $6.5 trillion in corporate equities and mutual fund wealth while the bottom 90% only managed to gain $1.2 trillion, the latest data from the Federal Reserve shows.
The stock market, which has nearly doubled since the March 2020 drop and is up nearly 40% since January 2020, was the main source of wealth creation in America during the pandemic — as well as the main driver of inequality.
Top 1% now owns a record of total wealth that exceeds 32%, shows Fed data. Their accumulated wealth amounts to $43.27 trillion from the total of $134.08 trillion, whereas in the previous year’s second quarter it stood at $33.95 trillion. The bottom 50% could only cling to almost 2 percent of the total wealth.
Top 1% generated nearly 70% of their wealth gains throughout one and a half years through stock, and undoubtedly it is one of the fastest wealth booms in recent history.
The recent data from the Federal Reserve shows that the top 1% generated 49.3% from the corporate equities and mutual funds shares. The top 10% wealth generation came majorly from Pension entitlements and ( 28.2%) and the corporate equities and mutual funds shares ( 26.2%). On the contrary, the major source of wealth generation for the bottom 50% in real estate ( 51.7%) and only 3.1% of their wealth came from corporate equities and mutual funds.
The 2020 covid-19 pandemic not only brought the negatives for the market but also the positives with the increasing participation of the individuals for the first time, what many called “democratization” of the stock market. This was taken as a welcoming move by many, in hope that more hands can enjoy the share of profits, but amidst the so-called paradigm shift, the wealth remained concentrated in the deep pockets of the top 1%. Meanwhile, the bottom 90% of Americans experience their share of shares shrinking, with them holding just about 11% of stocks, the Fed data showed. The bottom 50% holds just 0.6% of corporate equities and mutual-fund shares.
Pandemic taught the importance of saving and investing, at the same time, people were facing issues with securing jobs. In such a scenario, the stock market looks like a lucrative option to generate a passive income at least. Perhaps this could be the underlying factor that Robinhood
It is to be noted that even if the market is owned more broadly, the gains and wealth created is not distributed widely. The new individuals to the market are numerous but they hold small, with the average account size at about $4,500 at Robinhood. When the market will see a boom, comparatively their gains would be negligible in front of the wealthier investors having hundreds of thousands or even millions in stock holdings.
The strategy of the new investors could be more of securing quick bucks by buying and selling stocks rapidly, but it is not how you create wealth and ownership! Moreover, federal reserve data is the testimony that still the bottom 50% create their majority of wealth from the traditional way of investing in real estate. There is, still, a discouragement amongst the minds of the people. 37% of the wealth for the people under the age of 40 years is generated from real estate, while about 10% of them saw their wealth-generating from corporate equities and mutual fund shares.
The Federal Reserve data comes at a time, when there is mass resignation trending in the USA, owing to multiple factors. Would that mean that the stock market would see new entrants in the coming quarters as many people are opting out of their jobs voluntarily? In the coming years, would the trend of the bottom 50% see a deflection from its routine course? Will, there be a change in the concentration of wealth or the strong hands would become mightier? It will be interesting to see!