The Wall Street Journal has a fascinating story up today about how only the top ten income-earning households were able to hang onto their stock portfolios and ride the rally these past few years. As a result, the wealth gap widened even further as the bottom 90% had no skin in the game by the time things turned positive.
The Fed’s Survey of Consumer Finances shows that among the bottom 90% of households by wealth, families bailed out of the stock market between 2007 and 2010—the central bank’s study is conducted every three years—and between 2010 and 2013. The total share with stockholdings declined by 4.4 percentage points. That’s the equivalent of 5.4 million households selling stocks, even as the market rebounded. Only households in the top 10% have been increasingly likely to own stocks.
In my personal opinion, this speaks to the power of having financial advisors, which the lower 90 percent do not. The wealthiest investors simply get better advice and are more likely to endure the pain of hanging on. I don’t buy the argument that the lower 90 percent were forced sellers because, proportionately speaking, everyone has hardships relative to the cost of their lifestyles.
The bottom line is that, in a general sense, higher income earners received better investing advice that kept them engaged and involved in the market when others sold out. They were able to think rationally about their investments and fight through the pain. This is not to minimize the need for the lower earners to cash out some or part of their holdings, but I do not think that’s the whole story.