Rich get richer as economy gets better; everyone else is worse off

[Ed Anger]

I rape each barrel.

[OttoVonBismarck]

This falls in line with what fahdiz said. Basically, only the rich had the money in order to buy the stocks. In general, people use buying stocks as a place to park their savings. If you're living paycheck to paycheck or you need to have your money in an easier-access account, stocks just aren't an option. So, it was, if not impossible highly improbable that middle-class Americans would have been in a position to benefit from this.

I was investing in the stock market at age 18 as an enlisted kid in the army, I didn't exactly have a big paycheck. Since then I've consistently bought into the market (I continued buying happily during 2008, knowing I was getting historical low prices), and have done very well for myself.

[OttoVonBismarck]

Savings come out of income.  And middle class income is stagnating as well.

Middle class income has been stagnant for a long time, but to a degree I'm not always convinced this is a problem. Namely because I do not believe quality of life is stagnant. The average hourly wage, at least according to the BLS, has barely changed in real terms since the 1960s. Would anyone here argue that quality of life is not significantly higher in 2013 for the average wage earner than it was in 1964?

Cars are a good example, the average price in real dollars for a new car steadily went up until the early 2000s but has mostly gone down since then. Further, a significant portion of the rise since the mid-90s has been more expensive cars being purchased by the affluent affecting the average. The real price of entry level new cars has gone down in real dollars, and further an entry level car today has innumerable more safety, comfort, and performance features versus a top of the line Mercedes in 1980, let alone 1964.

We have more disposable income for average wage earners today, with disposable income spent on food falling from over 50% in the 50s to under 35% today. Homeownership rates, even after the recent troubles are still higher than in 1964.

[Ideologue]

Housing (owning and renting), healthcare, and education cost more, though.  I'm not sure about cars, really.

[Martinus]

Well, that's not really a suprise, especially if you consider that the "rich" here are the entire 13% top chunk.

These people are succesful professionals who most likely managed to keep their jobs during the recession, because these jobs are hardest to oursource/replace. So it's not a surprise that their net worth managed to grow.

[Martinus]

Bottom line: the "rich" diversify asset classes (real estate plus equities, etc.); the "non-rich" who own assets, mostly own real estate alone. Diversification has, predictably enough, done better.

Is my explanation (which, it seems, noone else brought up) wrong though? Sometimes the explanation is pretty simple - the most succesful people simply kept their jobs and managed both to save and increase their income during the recession, whereas the middle and lower classes were sacksed or had their pay reduced.

Maybe it's different in the US, but here in Poland, in my circle of friends, only the highest earners managed to stay in their jobs from pre-2008. Almost everybody else either was fired, and/or had to switch for a less paying job.

For example, I do not own stocks (too much hassle to invest individually, with our confidentiality procedures, and I don't trust investment firms). All my investment is pretty much deposits and real estate (two flats in Warsaw and some land god only knows where in the Eastern Poland), yet my net worth managed to grow despite prices of flats decreasing.

[jimmy olsen]

My net worth rose exponentialy since 2008

Of course, I started from -$16K and graduated from College and got a job in that time.

[garbon]

Is my explanation (which, it seems, noone else brought up) wrong though? Sometimes the explanation is pretty simple - the most succesful people simply kept their jobs and managed both to save and increase their income during the recession, whereas the middle and lower classes were sacksed or had their pay reduced.

[Malthus]

Bottom line: the "rich" diversify asset classes (real estate plus equities, etc.); the "non-rich" who own assets, mostly own real estate alone. Diversification has, predictably enough, done better.

Not predictably enough, actually.  Diversification doesn't really "ensure" high return.  It "ensures" optimal return for the level of risk taken, with that return in reality being about average.  If you're not diversified, your asset value can make a huge jump not just down, but also up.

I said "done better", not "ensure a high return". 

"Better" than putting all your investment eggs in one asset class - real estate. This is a more risky strategy and yes, it is entirely predictable that lack of diversification is likely, over time, to encounter exactly this problem.

Sure, it is possible fpr the gambler to get lucky. It is however most improbable for the gambler to stay consistently lucky over time. It is of course not certain, but yes, it is "predictable" as in being the most likely outcome - the longer your time horizon, the more "predictable" the outcome becomes. 

[Malthus]

Bottom line: the "rich" diversify asset classes (real estate plus equities, etc.); the "non-rich" who own assets, mostly own real estate alone. Diversification has, predictably enough, done better.

Is my explanation (which, it seems, noone else brought up) wrong though? Sometimes the explanation is pretty simple - the most succesful people simply kept their jobs and managed both to save and increase their income during the recession, whereas the middle and lower classes were sacksed or had their pay reduced.

Maybe it's different in the US, but here in Poland, in my circle of friends, only the highest earners managed to stay in their jobs from pre-2008. Almost everybody else either was fired, and/or had to switch for a less paying job.

For example, I do not own stocks (too much hassle to invest individually, with our confidentiality procedures, and I don't trust investment firms). All my investment is pretty much deposits and real estate (two flats in Warsaw and some land god only knows where in the Eastern Poland), yet my net worth managed to grow despite prices of flats decreasing.

The figures in the OP track "wealth", not "income", so one can't evaluate your theory based on the OP alone.

Obviously the two are going to be related, as (most) can't gather wealth without income - but the relationship is not 1:1. "Wealth" speaks more immediately to what one spends one's income on.

As for investments, I tend to use do-it-yourself places like ING Direct to park some in low-fee mutual funds. 

[DGuller]

Bottom line: the "rich" diversify asset classes (real estate plus equities, etc.); the "non-rich" who own assets, mostly own real estate alone. Diversification has, predictably enough, done better.

Not predictably enough, actually.  Diversification doesn't really "ensure" high return.  It "ensures" optimal return for the level of risk taken, with that return in reality being about average.  If you're not diversified, your asset value can make a huge jump not just down, but also up.

I said "done better", not "ensure a high return". 

"Better" than putting all your investment eggs in one asset class - real estate. This is a more risky strategy and yes, it is entirely predictable that lack of diversification is likely, over time, to encounter exactly this problem.

Sure, it is possible fpr the gambler to get lucky. It is however most improbable for the gambler to stay consistently lucky over time. It is of course not certain, but yes, it is "predictable" as in being the most likely outcome - the longer your time horizon, the more "predictable" the outcome becomes.

  I thought we were talking about the growth of assets?  Over the last couple of years?

[garbon]

As for investments, I tend to use do-it-yourself places like ING Direct to park some in low-fee mutual funds. 

Here it became CapitalOne360.

[OttoVonBismarck]

Aside from everything else, I don't think it's unreasonable to conclude net worth isn't really a great measure of what I think meri and her ilk are trying to say.

I know many people with very high incomes, who have lots of expensive toys, live in an expensive house etc who do not have a positive net worth. Generally higher income people should not get in such a situation, but some do. So on one hand there are individuals many would consider "rich" who might have negative net worth. Then, there are individuals who might have positive net worth (older people who have long since paid off a home, that has appreciated substantially over the years, as an example) who most would not consider "rich" because they do not have a very high income and don't buy expensive consumer products, don't "live rich" or etc.

[Malthus]

Bottom line: the "rich" diversify asset classes (real estate plus equities, etc.); the "non-rich" who own assets, mostly own real estate alone. Diversification has, predictably enough, done better.

Not predictably enough, actually.  Diversification doesn't really "ensure" high return.  It "ensures" optimal return for the level of risk taken, with that return in reality being about average.  If you're not diversified, your asset value can make a huge jump not just down, but also up.

I said "done better", not "ensure a high return". 

"Better" than putting all your investment eggs in one asset class - real estate. This is a more risky strategy and yes, it is entirely predictable that lack of diversification is likely, over time, to encounter exactly this problem.

Sure, it is possible fpr the gambler to get lucky. It is however most improbable for the gambler to stay consistently lucky over time. It is of course not certain, but yes, it is "predictable" as in being the most likely outcome - the longer your time horizon, the more "predictable" the outcome becomes.

  I thought we were talking about the growth of assets?  Over the last couple of years?

We are talking about why there exists a gap or disperity between how well the upper-whatever percent have done since the recession, and the rest.

Not sure where you are getting 'Diversification doesn't really "ensure" high return' from when I never said it did.

[DGuller]

We are talking about why there exists a gap or disperity between how well the upper-whatever percent have done since the recession, and the rest.

Not sure where you are getting 'Diversification doesn't really "ensure" high return' from when I never said it did.

You said that the rich had done better (i.e. got higher return) because they were diversified, and that this result was predictable (i.e. ensured).  You are right, you didn't say that diversification ensures higher returns, you just said something that is entirely equivalent to it.