Unlocking Wealth: The Stock Market’s Potential for Everyday Americans
There are many paths to wealth, such as founding a successful business, excelling in sports, or starring in films. However, for most average earners, the stock market remains the most reliable route to building substantial wealth. It’s both a flexible and low-risk avenue for accumulating wealth—if one is willing to be patient.
Start Your Mornings Smarter! Subscribe to Breakfast news for daily market updates in your inbox. Sign Up For Free »
Despite this potential, a significant number of adults in the U.S. do not invest in stocks. Many of those who do often invest only a small amount. This could hinder their financial growth. Let’s explore the implications of this and ways to take action if you’re among those under-invested.
Stock Ownership in Context
A recent Gallup poll reveals that only 62% of American adults own stocks. Most of these investments are in equity mutual funds rather than individual stocks; merely 20% of families in the U.S. hold individual shares. Typically, these funds are found within retirement accounts, with Baby Boomers leading in stock ownership, although Generation X is increasingly participating.
However, these numbers may obscure a larger wealth gap. Research from The Motley Fool indicates that the richest 1% of Americans own approximately 50% of the stock market’s total value—around $23 trillion. The next wealthiest 10% also hold nearly 40% of equity value.
For perspective, the bottom half of Americans collectively own around 12% of stocks. This translates to about $480 billion in equity among these households. According to U.S. Census data, with around 127.5 million households, that averages to less than $8,000 in stock holdings for these lower-income families. Interestingly, Gallup estimates the median stock ownership at $52,000, a more encouraging figure yet still modest.
The Wealth Gap in Stock Ownership
The statistics above might seem discouraging. However, they emphasize the importance of getting involved in the stock market, no matter your current investment level.
Image source: Getty Images.
Investing in the stock market is an effective way for average people to increase their wealth, historically growing at around 10% annually, beating inflation. This is a key reason why wealthier individuals prioritize stock ownership.
It’s Okay to Start Small
Whether you own one share of Apple or a thousand, your net percentage returns are the same. For example, those who held a stake in Apple over the past five years enjoyed a return of about 185%.
Also, many believe starting requires significant funds, but that’s not the case. New investors are often best off investing in an index fund that mirrors the S&P 500 (SNPINDEX: ^GSPC). This strategy follows the overall market rather than attempting to pick individual winners, minimizing risk.
Consider committing $50 or $100 monthly to an IRA or brokerage account, gradually building your investments. Over time, even small contributions compound, and your financial future can look promising. For instance, contributing $300 monthly to an S&P 500 index fund with a 10% average annual return could yield around $1.1 million after 35 years. This plan is manageable for many.
This could also significantly elevate your retirement savings beyond the current averages reported by Fidelity, offering a clearer path to financial security.
Maximizing Your Social Security Benefits
If you’re concerned about retirement savings, few people are fully prepared. However, some lesser-known “Social Security secrets” could substantially increase your retirement income—one tactic could provide you up to $22,924 more per year. Understanding how to maximize your Social Security benefits can lead to a secure and stress-free retirement. Click here to discover these strategies.
View the “Social Security secrets” »
James Brumley owns no stocks mentioned. The Motley Fool recommends Apple and has positions in it. The Motley Fool’s full disclosure policy applies.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
