The wealthiest Americans are seeing huge dividends from massive owning a lot of stocks, separating them from other smaller investors.
According to recent reports, the wealthiest 10% of Americans now own 89% of all US stocks held by households. This empirical trend underscores the stock market’s role in increasing wealth inequality. The stock market, up 40% since January last year, was the primary contributing factor to wealth creation during the pandemic. Since the March 2020 drop, it has nearly doubled in overall value, bestowing $6.5 trillion on the top 1%. This very elite group benefited massively from corporate equities and mutual fund wealth during the global lockdown.
By comparison, the bottom 90% only managed $1.2 trillion, according to up-to-date data from the Federal Reserve. Furthermore, corporate equities and mutual funds shares under the ownership of the top 10% was at an all-time high in the second quarter. Conversely, the bottom 90% owned 11% of individually-held stocks, which was a 12% drop before the pandemic.
The resulting effect from this development is that the top 1% now have a total record wealth portion of 32%. In addition, approximately 70% of their wealth gains within the past year and a half came from stocks. It is worth noting that this trend also represents one of the fastest wealth booms in recent history. As Steven Rosenthal, senior fellow, Urban-Brookings Tax Policy Center, put it:
“The top 1% own a lot of stock, the rest of us own a little.”
The Arrival of First-Time Investors to the Stock Scene Does Little to Slow Down the Wealthiest Americans
Another growing trend observed is that millions of younger, first-time investors coming into the stock market. According to trading mobile app Robinhood, it added more than 10 million new accounts over the past two years. Many of these trading accounts were created during the pandemic, and the platform now has in excess of 22 million.
However, despite the growing numbers of new investors, there still remains a huge wealth disparity. This is because these younger investors operate relatively small accounts, with the average at Robinhood being just $4,500. This pales in comparison when compared with the seemingly unlimited amount in stock holdings possessed by wealthier investors. This also implies that the smaller account holders will see far smaller dollar gains than the big players. Furthermore, the latter category has the opportunity to enter the market much earlier with their large sums. This usually translates to better value for their buck over a sustained period of time. According to Rosenthal:
“Many of the younger investors also bought in at higher prices, compared to bigger investors who have been in the market for years and see larger gains.”
Another leverage this wealthier class of investors has, is the ‘waiting game.’ They can afford to inject large sums of money and hold for the long term across different market climes. This means that the wealthiest Americans can afford to make more money from just holding on to stocks. The younger, newer investors have more of a rapid trading mentality where they buy and short stocks quickly. They do this with leverage in hopes of accruing quick gains. While this strategy might pay off occasionally, it is not always so.
Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to demystify crypto stories to the bare basics so that anyone anywhere can understand without too much background knowledge.
When he’s not neck-deep in crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
