> 10% own 84%
sounds more like simple power law. "A small wealthy % owns most of the X" is true for, well, almost everything. So when you ponder:
> Is it because 90% of Americans don't even have money left to invest after their cost of living?
The answer is "probably not." Because even if every american invested exactly 5% of their income in the stock market, or 50% of their income, you'd still expect to see ~10% own 84% of all stock. The 10% just have really high incomes/previous savings from incomes, etc.
In fact just ponder for a laugh, imagine if the 10% [richest people] only owned like... 15% of the stock market, or owned only like 15% of all real estate, etc. If that were true, you should be really worried about that thing as an investment!
Bitcoin might actually be the rare case where the top 10% don't actually own a huge share of a big valuable thing.
> Otherwise, where are people investing, if not the stock market?
The bottom 90% own most of the lotto tickets. The top 10% eschew these! The top 10% prefer index/hedge funds, which are basically lotto tickets with great odds and a totally lame ROI.
There is probably lots of value in convincing people to invest in the index fund lotto instead of the lotto lotto, but even if you did, about 10% would still own about 84% of all stock.
How is the stock market an exponential investment?
If you look at the growth of the stock since the beginning, and of most company stock, isn't it much more a linear growth?
So where would this power distribution come from?
It is trivially true in real estate (Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population.) Why wouldn't it be true in a market where the returns have been higher than real estate?
This is only true if you play the market though. Just holding on stock is not a compounding interest rate.
I might be wrong, but that's my impression.
If I buy 1000$ of stock this year and make 10% return. At the end of the year I have 1100$. Now the next year, I need to make 10% off of 1100$ to be compounded and end up with 1210$.
Now if I hold onto my same amount of stock. If I end up with 1210$ the second year, that's not due to compound interest, but simply to good performance in the stock which grew by 21% in two years. Effectively allowing it to grow at an annual return rate of 10%.
To be compounding, I would need to sell my shares after year one. Thus pocket 1100$. And buy 1100$ worth of shares which again would make 10%.
I mean, in effect it's the same. If the shares truly grow by 10% year over year. But the point I'm making is that your ownership in total number of shares does not grow. So if I had 100 shares at 1000$ out of a total of 10000 shares, I still have 100 shares but they are worth more at 1210$.
So as you see, over time, I don't grow at the expense of others in my total ownership. Thus I feel this does not explain how 10% can own 84% of all stocks.
It would be true, if people play the market in a way that, every year, they sell to buy cheaper stocks, thus growing their share count. And it turns out the companies whose share they held prior years all go bust. Then they'd progressively own more and more at an exponential rate.
Most people's primary investment is their home.
In part, I think this is true. But "cost of living" is maybe a bit broad. Most of these 90% of Americans have a poor grasp of personal finance, and spend way more on unnecessary crap than they should (car loans, credit card debt, restaurants, alcohol, coffee, cell phone bills, cable tv, etc.). This isn't to say that there aren't systemic problems that increase wealth inequality (there are), but a big part of the problem is just good old fashioned consumerism.
Most American households don't have disposable income, and even the ones that do it is modest. This whole "pull your bootstraps up!" talk about what is essentially under $6K/year of disposable income is pretty unrealistic.
And why shouldn't middle America enjoy creature comforts? The upper classes certainly do and aren't exactly great at financial planner either with their lifestyle often meeting their income.
The reality is that people at the top are taking a larger and larger piece of the pie since de-unionisation, and the middle class has almost vanished as a direct result.
> Most American households don't have disposable income
This is consistent with what I've said: much of their income could be spent much more efficiently. Transportation and food alone are two areas where a normal American could easily save $10k+/year without any real drop in quality of life.
> This whole "pull your bootstraps up!" talk about what is essentially under $6K/year of disposable income is pretty unrealistic.
1. Where'd $6k/year come from?
2. Even $6k/year invested at 7% annually nets $1.3M over a normal career.
> And why shouldn't middle America enjoy creature comforts?
Nobody's saying they shouldn't. Just they should be aware of their cost. At the end of the day, you trade your time for money. It's important to respect that money, and not frit it away on "creature comforts" that don't really bring you any joy.
> The reality is that people at the top are taking a larger and larger piece of the pie since de-unionisation, and the middle class has almost vanished as a direct result.
Hear hear! I'm with you. Again: this isn't an either-or situation. When you buy expensive high-margin things, you're voluntarily donating your money to the 1%ers. Don't do that.
From what i gather, most millionaires (not super wealthy) had relatively common jobs or business and became wealthy through savings.
Those that inherited their massive wealth aren’t that common.
Source?
With reference to "common jobs", that would be limited to high income professions, such as doctors and attorneys.
[1] https://smile.amazon.com/Millionaire-Next-Door-Surprising-Am...
[2] https://www.washingtonpost.com/wp-srv/style/longterm/books/c...
10% owning 84% seems to be the expectation then. This reminds me of an Atlantic article lamenting the “9.9%” [1].
[1] https://www.theatlantic.com/magazine/archive/2018/06/the-bir...
[0] https://money.cnn.com/2018/05/22/pf/emergency-expenses-house...
It's because it doesn't take all that much to live on when you retire, and to have more money requires working longer. Especially, most retirees get big efficiencies from using tax-advantaged accounts, so you have less invested, but you get more out of it. Those accounts have contribution limits, so they don't scale up for the big investors.
I work on goal-based financial planning, and one of the key things people want is to retire sooner, which means saving less. If your financial plan was perfect, you'd drop dead with exactly the amount you want to bequest to heirs / charities in your portfolio and not a penny more.
Is it because 90% of Americans don't even have money left to invest after their cost of living? Otherwise, where are people investing, if not the stock market?