Wealth effect: Has the Dow high restored yours?
The bronze bull symbolizing financial markets near Wall Street in lower Manhattan. The recession and stock market collapsed cost Americans 40 percent of their net worth. Now that the Dow is back, how much wealth has been recovered?
James Angel, who teaches finance at Georgetown’s McDonough School of Business, says it all depends on what you did when the market dropped.
“If you panicked and sold when the market went down you probably bought high and sold low, so you’re out of luck,” he says. If on the other hand, you viewed the dip in the market as a buying opportunity, “you’re probably really happy today.”
But, before you get overly excited, consider what Jeremy Siegel, who teaches finance at Wharton, has to say: “The Dow is not the whole market.”
And Siegel notes that only a little over half of Americans own stock. According to a Gallup poll, that’s down from 65 percent of the country before the recession.
Matt Coffina, editor of Morningstar’s newsletter, StockInvestor, says when it comes to concerns about investments, many Americans’ thoughts don’t stray far from home.
“For the typical household, the value of their house probably matters more to their personal wealth than the value of their stock holdings,” he says.
Coffina says that in terms of people’s well-being, even more important than their investments, is their income. But he points out that in general, household income has been stagnant for the last five years. Today’s Dow reflects corporate profits growing much more quickly then household income.
“Unless you’re Mitt Romney, I don’t think you’re feeling all that wealthy, or all that well off,” he says.
But good news for the 50 percent of Americans who do own stock can means good news for the rest of the country. If investors feel better about their wealth, they’re more likely to spend it.
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