The richest man in Babylon.
Much has been written about the concentration of wealth in America. As we move closer to the fall elections, the wealth gap is likely to gain even more attention. In a January 2019 Yahoo article titled, “Top One Percent Own 50% of Stocks,” financial reporter Heidi Chung said the wealthiest people in America own half of all stocks. More recently, Paul Vigna, writing in The Wall Street Journal, said, “Stock ownership is increasingly concentrated among a sliver of the population.The top 10% of Americans by wealth owned 87% of all stock outstanding in the first quarter, according to data from the Federal Reserve. That share has grown over the past decade, from 82.4% in 2009. The stock market has surged over that period, with the S&P 500 more than quadrupling from its low during the financial crisis in March 2009.” (“When the Stock Market and the Economy Seem Disconnected,” by Paul Vigna, Wall Street Journal, 8/15/2020)
Isn’t this stating the obvious? Perhaps it would be more accurate to say, “Those who own publicly traded stocks have become wealthier in America than those who don’t invest in stocks.” In other words, they don’t own stocks because they are wealthy. They are wealthy because they own stocks.
To my knowledge there are no legal barriers preventing anyone from investing in the stock market. In my career as a financial adviser I have watched thousands of people gradually build meaningful wealth over time by systematically investing in stocks. Anyone can do this.
In 1926 George S. Clason wrote a book titled The Richest Man in Babylon. It is still in print. Clason, speaking through a Babylonian scribe, describes six laws of wealth:
- Keep a part of all you earn. Save at least ten percent of your income.
- Put your savings to work. Invest it so it will multiply.
- Avoid debt. The poor pay interest. The rich earn interest.
- Don’t speculate in get-rich-quick schemes. Invest in solid businesses that you understand.
- Invest in yourself. Gain knowledge and skills to increase your earning power.
- Safeguard your growing fortune through diversification and insurance.
In my forty years as an independent financial adviser, I have worked with thousands of people who grew and preserved their wealth participating in the steady growth of the U.S. and world economies by investing in stocks. For many, it was my job to put them on a course to save and invest. I told them that wealth is created in America by owning a growing business over a long period of time. There are many such businesses. A competent financial adviser can put a person on a course to grow their wealth by owning stocks. There are no barriers to investing.
The income and wealth gaps in America are real. They are not resulting from social, political, or legal obstacles. They are driven by individual behavior. I know too many people not born to privilege or affluence who built significant wealth through personal discipline and consistently saving and investing. The rich are not rich because they are rich. They are overwhelmingly successful because they followed six simple rules: save some of every dollar you earn; invest in a growing economy; manage debt wisely and avoid it as much as possible; don’t fall for get-rich quick schemes; focus on self-improvement so you can earn more for your work; and diversify your holdings as your wealth grows. Do this and you can join the one percent who have 50% of the nation’s wealth.
