Take a deep breath and relax.
The riotous market swings that have whipped up frothy peaks of anxiety over the last week — bringing the major indexes down more than 10 percent from their peak — have virtually no impact on the income or wealth of most families. The reason: They own little or no stock.
A whopping 84 percent of all stocks owned by Americans belong to the wealthiest 10 percent of households. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans.
“For the vast majority of Americans, fluctuations in the stock market have relatively little effect on their wealth, or well-being, for that matter,” said Edward N. Wolff, an economist at New York University who recently published new research on the topic.
Both Republicans and Democrats have promoted the idea that a rising stock market broadly lifts Americans’ fortunes. When there was a parade of market rallies, President Trump asked, “How’s your 401(k) doing?”
There was a move toward democratizing stock ownership in the 1980s and 1990s, with the advent of individual retirement accounts, but the busts of 2001 and 2007 scared off some middle-class investors.
Of course, any financial loss can be scary and painful. Indeed, the less you have, the more each dollar counts. And market gyrations could foreshadow deeper problems that signal the end of a nine-year boom and short-circuit the economic recovery.
But the day-to-day impact on most people’s overall wealth is minimal.
“It’s far from where you think that it would be, given the rhetoric,” said Ray Boshara, director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.
A look at some fundamentals may provide a clearer perspective.
Stock ownership is the exception.
Roughly half of all households don’t have a cent invested in stocks, whether through a 401(k) account or shares in General Electric. That leaves half the population with some exposure to financial market whims, but as Mr. Boshara said, “some exposure can be 100 bucks.”
“If you look at where the money is really held, it’s among the top 10 percent,” he said. “And if you break it down by age, race and education and parental education, you’ll see the disparities are even larger.” Parents who lack a four-year degree and, later on, their children are much less likely to have a direct stake in the stock market than college graduates; blacks and Hispanics are much less likely than whites.
“It’s too bad such a small percentage of the population has any real or meaningful ownership stake in equities, given their historic and current growth,” Mr. Boshara said.
Most households had less than $5,000 in total holdings in 2016, the most recent year analyzed by Mr. Wolff. Despite the slow recovery in housing prices, the wealth of middle-class Americans is still concentrated in their homes, which remain their single most valuable asset.
For 9 out of 10 households, even a shift in value of 10 percent — enough to qualify as a “market correction” — would “at most, have a 1 or 2 percent impact on their wealth holdings,” Mr. Wolff said.
If anything, foreign multinational and other investors would feel more of a pinch, since they own 35 percent of all United States corporate stock, up from 10 percent in 1982. That share of the pie exceeds the single slice owned by taxable American shareholders, defined benefit plans, defined contribution plans, or nonprofit institutions, said Steven M. Rosenthal, a senior fellow at the nonpartisan Urban-Brookings Tax Policy Center.
The riotous market swings that have whipped up frothy peaks of anxiety over the last week — bringing the major indexes down more than 10 percent from their peak — have virtually no impact on the income or wealth of most families. The reason: They own little or no stock.
A whopping 84 percent of all stocks owned by Americans belong to the wealthiest 10 percent of households. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans.
“For the vast majority of Americans, fluctuations in the stock market have relatively little effect on their wealth, or well-being, for that matter,” said Edward N. Wolff, an economist at New York University who recently published new research on the topic.Both Republicans and Democrats have promoted the idea that a rising stock market broadly lifts Americans’ fortunes. When there was a parade of market rallies, President Trump asked, “How’s your 401(k) doing?”
There was a move toward democratizing stock ownership in the 1980s and 1990s, with the advent of individual retirement accounts, but the busts of 2001 and 2007 scared off some middle-class investors.
Of course, any financial loss can be scary and painful. Indeed, the less you have, the more each dollar counts. And market gyrations could foreshadow deeper problems that signal the end of a nine-year boom and short-circuit the economic recovery.
But the day-to-day impact on most people’s overall wealth is minimal.
“It’s far from where you think that it would be, given the rhetoric,” said Ray Boshara, director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.
A look at some fundamentals may provide a clearer perspective.
Stock ownership is the exception.
Roughly half of all households don’t have a cent invested in stocks, whether through a 401(k) account or shares in General Electric. That leaves half the population with some exposure to financial market whims, but as Mr. Boshara said, “some exposure can be 100 bucks.”
“If you look at where the money is really held, it’s among the top 10 percent,” he said. “And if you break it down by age, race and education and parental education, you’ll see the disparities are even larger.” Parents who lack a four-year degree and, later on, their children are much less likely to have a direct stake in the stock market than college graduates; blacks and Hispanics are much less likely than whites.
“It’s too bad such a small percentage of the population has any real or meaningful ownership stake in equities, given their historic and current growth,” Mr. Boshara said.
Most households had less than $5,000 in total holdings in 2016, the most recent year analyzed by Mr. Wolff. Despite the slow recovery in housing prices, the wealth of middle-class Americans is still concentrated in their homes, which remain their single most valuable asset.
For 9 out of 10 households, even a shift in value of 10 percent — enough to qualify as a “market correction” — would “at most, have a 1 or 2 percent impact on their wealth holdings,” Mr. Wolff said.
If anything, foreign multinational and other investors would feel more of a pinch, since they own 35 percent of all United States corporate stock, up from 10 percent in 1982. That share of the pie exceeds the single slice owned by taxable American shareholders, defined benefit plans, defined contribution plans, or nonprofit institutions, said Steven M. Rosenthal, a senior fellow at the nonpartisan Urban-Brookings Tax Policy Center.
by Patricia Cohen, NY Times | Read more:
Image: Sam Hodgson
