With stocks at record highs, you may not feel wealthy. Weird huh?
My net worth probably took an equal percentage hit because of my holdings in real estate. Good thing it's hard to mark to market real estate values given the lack of transactions. To make myself feel better, I often joked I was catching up to the likes of Bill Gates, Warren Buffet, and Carlos Slim given they lost billions.
Traffic in San Francisco was lighter back then. I could get a reservation on a whim at my favorite steak house and I no longer had to hear every Dick, Nancy, Lisa, and Raj tell me how much money they were making in the markets. 2008-2010 was a time for reflection. There was a reprieve from cacophony that felt wonderful.
Now that we're at all time highs with the S&P 500, I'm afraid the noise will return again.
Stocks At Record Highs But You Don't Want A Bull Market
Wealth inequality is a growing issue in America and many countries around the world. Those who own equities and real assets are getting rich while those who can't get their money working for them are falling further behind.
The reason why you don't feel wealthy with stocks at record highs is because the majority of the population owns the minority of equities. Although this chart is from 2007, the present day percentages are about the same. Wealth is only going to get more concentrated within the top 10%.
The 10% own an incredible 80%+ of all the stock market wealth. As you've seen from a previous post on top income earners, the income split to decide the top 10% is around $115,000 a year. The top 20% (~$85,000 and up) own 90% of all stock market wealth.
If you're making less than $85,000 a year as a household, there's just not that much left after food, clothing, shelter, and tuition to dump into the stock markets and hope you'll make a return. Compounding things further, there are many $85K+ income earners who don't even bother to invest their money. The real level of dismay may therefore be much greater than 80%.
It helps to talk in extremes to make a point. Imagine if stock markets went to zero and the government confiscated all our property. The rich would be just like everybody else, making us all equal again. Now imagine if the Dow rocketed to 100,000. We'd all turn into slaves.
ENVY CANNOT BE CONTROLLED When Stocks Are At Record Highs
It's one thing to lose money when everybody else is losing money. It's another thing to gain a little more financial security while others start making boatloads of money. If someone you know has a million dollar stock portfolio and returned $160,000 a year, you'll be hard pressed not to feel envy when your $100,000 portfolio only returned $16,000.
The percentages are the same, but the absolute return of $160,000 is enough to support a family for well over a year. Meanwhile, your $16,000 can't even buy you a new Honda Civic.
Money envy leads to bubbles. Nobody wants to fall behind in an upswing, which is why you are now seeing a herd of buyers come out of the woodwork in search for real estate. Why such folks didn't pick up properties for the cheap in 2009, 2010, 2011, I have no idea.
Comparison Is The Thief Of Joy
I've been roaming the open houses in San Francisco for the past six months and things are not looking good for prospective buyers given the lack of inventory and lots of competition.
The one great thing about a bull market is the positive effect stronger corporate earnings has on the labor market. For the large majority of people, working is the only way to make a living. It is an inevitability employment will improve as companies struggle to meet demand. Soon we will see bidding wars for talent again. Just make sure you don't compare yourself to someone else who doesn't even have to work for a living.
To the 90% majority, start getting unhappy now! The top 10% are going to make everything from tuition, to real estate, to vacations, to getting a reservation at your favorite restaurant that much more expensive and difficult.
Stocks Provide Zero Utility
Finally, the reason why you don't feel wealthy when stocks are at record highs is because you can't enjoy your stocks. Unlike real estate, where you can live in it, raise a family, have friends over, and create wonderful memories, stocks are just funny money.
To feel rich with stocks, you need to sell stocks on occasion to pay for experiences and things! Otherwise, you'll never feel rich.
Invest In Private Growth Companies
If you want to feel rich, then consider diversifying into private growth companies. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. You can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
RECOMMENDATIONS TO BUILD WEALTH
With stocks at record highs, you need to get a handle on your finances by signing up with Empower. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize.
Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Empower to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying!
They also recently launched the best Retirement Planning Calculator around, using your real data to run thousands of algorithms to see what your probability is for retirement success. Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner.
There's no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future with stocks at record highs?
About the Author:
Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He is aggressively investing in real estate crowdfunding to arbitrage low valuations and take advantage of positive demographic trends away from expensive coastal cities.