Record Stock Market Rally Leaving Half of Americans Behind
The stock market continues to chug along, hitting new highs virtually every day. Back in early March, the Dow Jones Industrial Average crossed 14,200 for the first time ever. It has continued to climb over the last two months and is currently sitting near 15,100. So far this year, the Dow Jones is up more than 15%. The S&P 500 is running in step and is up 14.5% in 2013.
With things going so wildly well on Wall Street, you’d think Americans would be cheering in the streets! But they’re not—not by a long shot. Incredibly, economists argue that stock market gains make the average person feel richer, and it encourages them to spend.
It’s hard to feel empowered as consumers to spend when wages are flat and taxes are up. In fact, the median household income has dropped by more than $4,000 since 2007 and 2008. So while the stock market is rocketing to new highs, American workers aren’t really reaping the benefits.
While lower-wage jobs accounted for 21% of all recession losses, they accounted for 58% of recovery growth; those who are working those jobs take home a handsome $13.83 per hour. Mid-wage jobs accounted for 60% of recession losses, but only 22% of recovery growth. (Source: “The Low-Wage Recovery and Growing Inequality,” National Employment Law Project web site, August 2012, last accessed May 13, 2013.)
Workers in seven of the 10 most common occupations typically earn less than $30,000 a year, which is significantly less than the nation’s average annual pay of $45,790. Registered nurses make the most at $67,900 a year. (Source: “May 2012 National Occupational Employment and Wage Estimates United States,” Bureau of Labor Statistics web site, March 29, 2013, last accessed May 13, 2013.)
This might explain, in part, why 50% of Americans aren’t benefiting from the stock market. Thanks to flat wages, increasing debt loads, and higher taxes, fewer people are actually able to invest in the stock market and take advantage of the recent run. (Source: Saad, L., “U.S. Stock Ownership Stays at Record Low,” Gallup Economy, May 8, 2013.)
A recent poll showed that 52% of Americans (personally or jointly) owned stocks in whole or as part of a mutual fund or self-directed retirement account—the lowest number since the poll was first conducted in 1998. In 2007, just before the recession, 65% of Americans said they owned stocks. The largest decline in stock ownership, a drop of 14%, was in the age bracket of 30–49 years.
The study concluded that high unemployment was a definite hurdle for most wanting to get into the stock market. It’s not that people don’t want to, they just can’t afford to. They are also afraid that the economic disconnect between high unemployment and record stock runs makes the market too risky.
In spite of all the misgivings, it’s important for investors to have exposure to the current bull market. Rebalance asset allocation based on your risk levels. If you want to shy away from low-yield bonds and are more interested in stocks, but don’t have enough to purchase a wide variety, consider one of the thousands of exchange-traded funds (ETFs).
ETFs are investments that try to mirror the return of a particular index or sector. ETFs are an attractive alternative to investing in individual stocks (or not investing at all) because they give investors the opportunity to own a basket of stocks they could not otherwise afford to purchase individually.
If you think the S&P 500 is going to continue its nascent run, consider an ETF that mirrors the S&P 500. If you think the S&P 500 is going to stumble, you could also look at ETFs that short the S&P 500. There are also ETFs that hold and short the Dow Jones Industrial Average.
With over 8,000 mutual funds and ETFs covering every conceivable corner of the stock market, it’s virtually impossible to not find one that suits your investing strategy and risk levels.
Investors that have held off getting into the markets over the last few years have undoubtedly lost out on solid gains, but that doesn’t mean they should be shy of getting involved now. Exposure to the market, whether it’s with individual stocks or ETFs, is the only way to take advantage of a bull market that shows no signs of slowing down.