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

[DGuller]

The issues then is "was this bad result a predictable result because I did X"? By which is meant "did I increase my risk of a bad result in a way I could have foreseen by doing X"?

I would have thought the answer obvious, but apparently it isn't. 

Part of the reason why it isn't apparent is that in your usage, a 1% outcome is predictable, whereas a 99% outcome isn't predictable.

[Malthus]

Sure, you may invest in a single asset class and come out ahead, or drive drunk and get to your destination. But if a bad result occurs rather than a good result, strikes me as being entirely predicatble.

But only for the time frame. For someone who bought a house as prices were increasing, it was "entirely predictable" that they could sell it later for more money. So that predictability only really comes with the backdrop of knowing if someone is in a boom or bust.  After all, even if you look at a long time period like say 50 years - you know that your house value will go up and down but it isn't entirely predictable if your house value will be up or down at the end of that time period.

Also, I don't think any of this would predict that the top 13% would end up with more wealth. Certainly it could see them remaining stable as other investments made up for their loss of house net worth but wouldn't predict them gaining what other networth groups lost.

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

[garbon]

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

Yes safer aka stable. That doesn't mean that such should predict the increase seen for the rich over two years.

[Malthus]

The issues then is "was this bad result a predictable result because I did X"? By which is meant "did I increase my risk of a bad result in a way I could have foreseen by doing X"?

I would have thought the answer obvious, but apparently it isn't. 

Part of the reason why it isn't apparent is that in your usage, a 1% outcome is predictable, whereas a 99% outcome isn't predictable.

Let me get this straight: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

[Malthus]

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

Yes safer aka stable. That doesn't mean that such should predict the increase seen for the rich over two years.

[fhdz]

Sure, you may invest in a single asset class and come out ahead, or drive drunk and get to your destination. But if a bad result occurs rather than a good result, strikes me as being entirely predicatble.

But only for the time frame. For someone who bought a house as prices were increasing, it was "entirely predictable" that they could sell it later for more money. So that predictability only really comes with the backdrop of knowing if someone is in a boom or bust.  After all, even if you look at a long time period like say 50 years - you know that your house value will go up and down but it isn't entirely predictable if your house value will be up or down at the end of that time period.

Also, I don't think any of this would predict that the top 13% would end up with more wealth. Certainly it could see them remaining stable as other investments made up for their loss of house net worth but wouldn't predict them gaining what other networth groups lost.

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

The person who has all their assets in one investment is more exposed to risk, and furthermore those risks are more nonlinear - although the lower bound is "ruin", which no one wants regardless of class or income level. The person who has their assets diversified has a reduced risk of loss (where the potential losses are knowable, quantifiable, and most importantly do not significantly impact the bottom line) and a reduced chance of gain (with the potential gain still more nonlinear than the potential loss).

It's common sense - the more quickly you want to get rich, the more exposed you are to ruin.

[garbon]

Let me get this straight: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

Well I suppose that depends on how one looks at it. I mean isn't the likelihood of a car accident actually pretty low? And then let's say drunk driving increase that risk by 10-fold - isn't it still pretty unlikely that you'll get in a car accident?

[Malthus]

Let me get this straight: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

Well I suppose that depends on how one looks at it. I mean isn't the likelihood of a car accident actually pretty low? And then let's say drunk driving increase that risk by 10-fold - isn't it still pretty unlikely that you'll get in a car accident?

You are fighting the hypothetical again.

Read carefully: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

[garbon]

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

Yes safer aka stable. That doesn't mean that such should predict the increase seen for the rich over two years.

Well it stands to reason, per what you've said, that the person without diversification (non-rich) is more exposed to risk and with what we had happened so net worth plunge because it was all tied up in falling house prices.

The rich, per what you've said, has some exposure to house prices but net worth doesn't plunge as they've also spread to some other sources.  It seems to me that those other sources must have done pretty spectacular to not only have the person balance out the house price drop but also push it to an increase of 21% over 2 years.

[fhdz]

Let me get this straight: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

Well I suppose that depends on how one looks at it. I mean isn't the likelihood of a car accident actually pretty low? And then let's say drunk driving increase that risk by 10-fold - isn't it still pretty unlikely that you'll get in a car accident?

Yes, but the associated possibilities of getting in a car accident are nonlinear in scope - you could have a minor fenderbender at best but you also could be facing manslaughter charges, the loss of your job, etc etc etc. Furthermore you can't know what "loss" you will face until you are faced with it.

You *can*, however, know how *exposed* you are to various risks. "If I drive drunk, how exposed am I to gain and, conversely, to catastrophic loss? I must conclude that driving drunk is a sucker bet. The upside is very limited and the downside is potentially ruinous."

[garbon]

Let me get this straight: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

Well I suppose that depends on how one looks at it. I mean isn't the likelihood of a car accident actually pretty low? And then let's say drunk driving increase that risk by 10-fold - isn't it still pretty unlikely that you'll get in a car accident?

You are fighting the hypothetical again.

Read carefully: if I drink and drive and get into an accident because of that, this is "not a predictable result" according to you?

Sure but that's after the fact. It's probably fair to say that the drinking contributed to your accident but that's little to do with prediction about whether on any given day you have an accident while drunk.  After all, if the odds are in favor of not having an accident whether you are drunk or sober, then net-net it is most likely the case that you won't have one.

[Malthus]

Sure, you may invest in a single asset class and come out ahead, or drive drunk and get to your destination. But if a bad result occurs rather than a good result, strikes me as being entirely predicatble.

But only for the time frame. For someone who bought a house as prices were increasing, it was "entirely predictable" that they could sell it later for more money. So that predictability only really comes with the backdrop of knowing if someone is in a boom or bust.  After all, even if you look at a long time period like say 50 years - you know that your house value will go up and down but it isn't entirely predictable if your house value will be up or down at the end of that time period.

Also, I don't think any of this would predict that the top 13% would end up with more wealth. Certainly it could see them remaining stable as other investments made up for their loss of house net worth but wouldn't predict them gaining what other networth groups lost.

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

The person who has all their assets in one investment is more exposed to risk, and furthermore those risks are more nonlinear - although the lower bound is "ruin", which no one wants regardless of class or income level. The person who has their assets diversified has a reduced risk of loss (where the potential losses are knowable, quantifiable, and most importantly do not significantly impact the bottom line) and a reduced chance of gain (with the potential gain still more nonlinear than the potential loss).

It's common sense - the more quickly you want to get rich, the more exposed you are to ruin.

Another problem for the homeowner non-rich is liquidity. That is, if the market appears to be peaking in real estate, it is significantly more difficult for them to cash in on it - that involves selling the house that they happen to be living in (presumably meaning they have to fiond elsewhere to live, which they must purchase or rent in the same market), a major undertaking.

It's a lot easier to sell stocks.

This means that they are immediately exposed to all sorts of risks - well, if they have a mortgage, risk such as interest rate increase - but find it harder to cash in on the rewards.

[fhdz]

Another problem for the homeowner non-rich is liquidity. That is, if the market appears to be peaking in real estate, it is significantly more difficult for them to cash in on it - that involves selling the house that they happen to be living in (presumably meaning they have to fiond elsewhere to live, which they must purchase or rent in the same market), a major undertaking.

It's a lot easier to sell stocks.

This means that they are immediately exposed to all sorts of risks - well, if they have a mortgage, risk such as interest rate increase - but find it harder to cash in on the rewards.

Quite so.

[garbon]

Yes, but the associated possibilities of getting in a car accident are nonlinear in scope - you could have a minor fenderbender at best but you also could be facing manslaughter charges, the loss of your job, etc etc etc. Furthermore you can't know what "loss" you will face until you are faced with it.

You *can*, however, know how *exposed* you are to various risks. "If I drive drunk, how exposed am I to gain and, conversely, to catastrophic loss? I must conclude that driving drunk is a sucker bet. The upside is very limited and the downside is potentially ruinous."

Certainly, I'm not trying to argue that you should drink and drive - just that saying its predictable you will get into an accident is odd to say because it isn't.

I did actually look up fatal car accidents and it looks like those are uncommon and you are 7 times more likely to have one if you have a BAC of .10.

As you say though, the issue with driving drunk isn't that it is predictable you will have a fatal accident but more the advantage of driving drunk vs. the terrible consequences that can result (death, injury, jail time, etc.).

[Malthus]

We are talking about risks here. The point of "diversification" as a strategy is to insulate against the risk of a volitile market in assets. Given volitility, a group with a "diversified" portfolio is going to, on average, do better than a group that isn't diversified.

Why does this benefit the "rich"? - Because, as a class, the non-rich find it much harder to own assets aside from their house.

This makes the "rich" safer, over and above the fact that they have more money.

Now, it is of course possible that the non-diversified can do *better* than the diversified, in any given year. But they are taking a bigger risk. The irony being, of course, that the non-rich generally have more reason to be wary of risk than the rich.

Yes safer aka stable. That doesn't mean that such should predict the increase seen for the rich over two years.

Well it stands to reason, per what you've said, that the person without diversification (non-rich) is more exposed to risk and with what we had happened so net worth plunge because it was all tied up in falling house prices.

The rich, per what you've said, has some exposure to house prices but net worth doesn't plunge as they've also spread to some other sources.  It seems to me that those other sources must have done pretty spectacular to not only have the person balance out the house price drop but also push it to an increase of 21% over 2 years.

I'm merely going by what it said in the article linked to the table in the OP.