A Rarely Mentioned Reason for the Wealth Gap

When Janet Yellen starts talking about income inequality, it is evident the topic is not going away anytime soon.  In addition to the differences in income earned by the top and bottom 20 percent, however, there are differences in overall wealth (assets).  Wealth disparities are not addressed as often as income disparities, since wealth goes beyond labor earnings, and wealth inequality cannot be solved by increasing the minimum wage; it is the stock real estate, savings, retirement accounts and other possessions owned by households.  The Wall Street Journal featured an article yesterday on a driver of wealth disparity since 2009 – buying and selling stocks at the wrong time.  According to author Josh Zumbrun, some households had to sell stocks after the downturn due to job losses or to make mortgage payments.  But even controlling for adverse circumstances, some households just sold at the wrong time.  Those who held on after the collapse, according to Zumbrun, “…reaped the benefits as stocks nearly tripled between 2009 and today.”

This is not an attempt to “blame the victim,” but let’s be honest.  Other than art, stocks are one of the only assets I can think of where investors will rush to buy as prices increase, and then bail out when prices fall.  In 2009, many investors were mocked for staying put in stocks, and even buying more.  But as I pointed out in 2009 and again in 2011, those who stayed in the stock market and continued contributions to a stock fund did better than those who cashed out or switched to bonds.

There will be more market bulls and bears over the years.  But savers and investors shouldn’t be ruled by the fear of them.

Comments (3)

Trackback URL | Comments RSS Feed

  1. Vera says:

    It seems they didn’t understand that stocks involve risk. Either they didn’t have enough emergency savings or they weren’t prepared to see their stocks lose value.

  2. Fred says:

    “wealth inequality cannot be solved by increasing the minimum wage.” How is that? If minimum wage workers earned more, would they be unable to save or invest it? Would they be less capable of accumulating assets if they were paid more?

    • Pam says:

      Individuals who are earning the minimum wage (which are actually few) and who would benefit from a minimum wage increase are not going to be buying stocks with that money, even if they are able to save. The driver of wealth is not wage income, but investment income. And increasing the price of inputs does not make people richer.

Leave a Reply

If you want a picture to show with your comment, go get a Gravatar.