New Federal Reserve analysis of stock markets has found that the concentration of ownership of the public equity stock market has hit an all-time high.
“The rich now own a record share of stocks,” Axios reported on January 10, noting that the top 10 percent hold about 93 percent of U.S. households stock market wealth.
“The running of the bulls in 2023 was more like the waddle of the fat cats,” quipped Irina Ivanova in Fortune.
Our Institute for Policy Studies Inequality.org analysis of the Fed data found that the lion’s share of these gains went to the richest 1 percent. This elite group owns 54 percent or public equity markets, up from 40 percent in 2002. The next 9 percent (or households in the 90th to 99thpercentile) saw their share of public market value grow from 38 percent in 2002 to 39 percent, a modest gain.
The U.S. stock market is where major wealth gains have been achieved. The estimated current valuation of the U.S. stock market is $46.2 trillion, according to Siblis Research. This value has tripled over the last 20 years. (In 2003, the total value was $14.2 trillion.) Based on this estimate, the richest 10 percent of U.S. households own roughly $42.7 trillion in stock market wealth, with the richest 1 percent owning $25 trillion. The bottom half of U.S. households own less than half a trillion dollars in stock market wealth.
By interesting coincidence, total stock market wealth is roughly equal to the $47 trillion value of the U.S. residential real estate market, according to Redfin. The total value of the housing market was $10 trillion in 2000.
The myth of the ‘democratized stock market’
There’s been a lot of chatter about the “democratization” of public equity markets, as a growing share of the population has joined the investor class. The Fed estimates that 58 percent of U.S. households have some money in the stock market, mostly through retirement funds like IRAs and mutual funds. But given that just 7 percent of stock market wealth is owned by the bottom 90 percent, with only 1 percent owned by the bottom 50 percent of households, such hype is missing the key trend: a continuing concentration of stock market wealth.
As Gillian Tett observed in the Financial Times, “If nothing else, these rising concentrations merit far more public debate, since they challenge America’s self-image of its political economy and financial democracy.”
The ultra-wealthy are shifting funds to private markets not available to the general public
Tett observes that the ultra-wealthy are actually moving money out of the traditional public equities markets. Family offices managing wealth for the ultra-rich have shifted more funds to private capital markets. According to a survey of 330 family offices, their portfolio allocations to private capital markets are 29.2 percent, edging out for the first time investments in public equities, which are at 28.5 percent, according to Campden Wealth and RBC 2023 report.
This is in part because these wealthy family offices have so much accumulated wealth that their assets are diversified over multiple asset-classes, such as real estate, direct ownership, impact investments, crypto, art, jewelry, jets, and yachts. But the shift to private equity markets is also related to the volatility of the public markets and the big gains to be found in private offerings not available to the wider investing public.
Baby bonds are one solution to extreme wealth concentration at the top
How do we boost the wealth ownership of the bottom half of households?
One bold solution to the wealth gap is to establish children’s savings accounts, also known as “Baby Bonds.” Senator Cory Booker and U.S. Representative Ayanna Pressley have introduced the American Opportunity Act, a federal baby bond bill. The legislation has been introduced in the Senate as S. 441 with 16 cosponsors, and introduced in the House as HR. 1041, with 31 co-sponsors. Under this proposal, children would be provided with a $1,000 savings account at birth, with annual contributions up to $2,000, depending on family income.
At the age of 18, the proceeds of these accounts would become available to recipients for specified purposes, including educational expense, purchasing a home, or investments that provide for long-term returns. Funds could be invested in mutual funds and retirement funds to increase the nest eggs for non-wealthy individuals.
A number of states, like Connecticut, and a few cities, like Washington, DC, are also creating baby bond programs – or have introduced legislation to create them.
