Why do Stocks Matter in a Portfolio?

CNBC had an interesting article (available HERE) that headlines The wealthiest 10% of Americans own a record 89% of all U.S. stocks. In my opinion, the article takes a negative viewpoint and surmises that the stock market is contributing to wealth inequality. To me, this showcases exactly why stocks matter in a portfolio.

The latest Gallup polls find that 56% of Americans invest in stocks. This is closely in line with the 55% estimate I’ve heard for many years. With participation this low, stocks being the number one wealth creator in America’s history, and the wealthiest 10% of Americans owning 89% of all U.S. stocks, it’s no mystery why the top 1% added $6.5 Trillion in value to their net worths and the bottom 90% only added $1.2 Trillion.

This article doesn’t go deep enough into data points to validate or debunk my assumptions, but I’m going to bet there are three things at play here the everyday American can do to participate in adding to their net worth like the top 1% do:

  1. Show up and participate – 56% participate! If you want to be like the top 1% of America’s wealthiest people, you may want to do what they do… Individual, Joint, and Trust owned brokerage accounts have been accessible to everyday Americans for decades. Roth IRAs/Traditional IRAs have been widely available. Many employees have access to employer sponsored retirement plans such as a 401k. Whether you do it yourself with a Schwab retail account or you work with a professional adviser, or join your company’s 401k plan, show up and participate.
  2. Think long term – The top 1% of Americans didn’t become wealthy overnight. Some of them built businesses that took years and years before realizing massive gains. Some of them built value little by little over long periods of time, sometimes even over multiple generations. A select few people will get lucky gambling on big gains, but investing in a diversified portfolio, including stocks, and participating for the long term is statistically and historically the best way to build wealth.
  3. Don’t EVER let emotion make decisions for you – I always recommend someone’s trading decisions avoid greed and fear. If you’re placing trades because of either, eventually you will hurt yourself. The top 1% of wealth holders in America don’t fret, worry, or trade to cash when the market consolidates or corrects. Left to their own devices, investors time and time again buy high and sell low. The reason for this is because emotion is the driver behind their trading decisions. If you can’t stomach buying and holding long term, if you can’t help but check your balances more than quarterly, if you don’t know how to perform diversified asset allocation and rebalancing, or you need to apply healthy discipline to your investing, it’s time to hire a professional who can be objective and unemotional.

I don’t think stocks are diabolically contributing to wealth inequality. I think that the top 10% holding 89% of the stock are dumbfounded why so many people aren’t bothering to participate and constantly vacillate on their investment decisions. What are your thoughts on stocks being in a portfolio and/or how stocks contribute to wealth inequality?

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