Released stats show that the wealthiest 10% of Americans now own 89% of all US stocks, a record high percentage to be recorded. This has been used as evidence to depict how the stock market plays a role in widening the wealth inequality gap. Worldwide, reports of wealth inequality were aired out, and the number of rich people increased globally.
According to the findings provided by the Federal Reserves, “the top 1% gained more than trillion in corporate equities and mutual fund wealth during the Covid-19 pandemic, while the bottom 90% added $1,2 trillion.” Economic analysts noted how the coronavirus pandemic aided others in amassing more finances while draining others of their money. It was an opportunity for business gurus to get fat paychecks and cash in big, and the struggling classes were plunged into a pool of expenses.
“The share of corporate equities and mutual funds owned by the top 10% reached the record high in the second quarter, while the bottom 90% of Americans held about 11% of individually held stocks, down from 12% before the pandemic.” Acquiring wealth by the rich population has been attributed to the stock market value, which is now nearly up to 40% since January 2020.
Also, the stock market managed to drive a big wage between rich people and poor people leading to an increase of both millionaires and impoverished masses. The Fed’s data showed a whopping 32% share of the total wealth owned by the top 1%. Such a financial boost came from the stock, and about 70% of this wealth was acquired over the past year and a half. Covid-19 was a necessary evil that boosted the finances for some people.
Steven Rosenthal, senior fellow, Urban-Brookings Tax Policy Center, said, “The top 1% own a lot of stock, the rest of us own a little”. Many new investors flooded the stock market during the pandemic but still managed to generate more wealth for specific individuals, described as “the democratization” of stocks. Over 10 million new accounts were added to Robinhood, and it now has 22 million, which comprises first-time investors.
Despite having created a global web of investors, the stock market’s gains and wealth are not distributed to dispersed investors. Rosenthal explained that vast investors only translate to a small entity with the average account size for Robinhood pegged at $4 500.
CNBC posited that “When markets rise, they will have far smaller dollar gains than wealthier investors with hundreds of thousands or even millions in stock holdings.”
In relation to new investors, Rosenthal said, “Many of the younger investors also bought in at higher prices, compared to bigger investors who have been in the market for years and saw larger gains.” New players on the stock market tend to exhibit a trading mentality of buying and selling their stock rapidly and trying to make quick gains, so they lack patience. This strategy can yield gains if but one can pocket lower returns on a bad day. Those players who have been in the game for a long buy stock and hold onto it for a long term while waiting to cash it in for huge gains.
A 43% gain was witnessed for the top 10% between January 2020 and June 2021, and the bottom 90% of the stock wealth was trading at a lower rate of 33%. “They might account for a larger share of trading activity, but that’s different from ownership and wealth,” noted Rosenthal.
It is projected that more investors will pour in since the stock markets are now seen as a cash cow for those with knowledge of trading.