Who Owns the Stock Market?

You, essentially.

You the investor. You the day trader. You the pension beneficiary. Whether directly or indirectly, households own the stock market.

But the inequality of this ownership is simply incredible. Broken up by income percentiles, here's how ownership of the stock market spreads out:

Source: Levy Institute 2007, author's calculations.

A lot of the reason for this inequality is cause and effect. Wealthy people don't own stocks because they're wealthy; they're wealthy because they own stocks. Go down the annual Forbes list of billionaires. It's predominantly a list of folks who have made their fortunes through stock market appreciation. From Bill Gates with Microsoft (NYSE: MSFT  ) to Warren Buffett with Berkshire Hathaway (NYSE: BRK-B  ) to Sergey Brin with Google (Nasdaq: GOOG  ) , the wealth of most billionaires is married to the stock market in one way or another. The top 50 billionaires include those overwhelmingly linked to the performance of Wal-Mart (NYSE: WMT  ) , Dell (Nasdaq: DELL  ) , and Amazon (Nasdaq: AMZN  ) stock, to name a few.

But it's worth asking: Is this wealth inequality a good thing? Should we be proud of it? There are two ways, I think, of looking at it.

One, inequality could be seen as a sign of opportunity. There's massive inequality in this country because it's possible to work hard and grow far wealthier than most of your peers. And that's great.

But an interesting counter to this point comes from a recent report by the Organization for Economic Cooperation and Development, which shows the United States has one of the lowest rates of social mobility -- basically, the ability to move from poor to rich -- in the developed world. Put simply: "Intergenerational social mobility tends to be lower in more unequal societies." One reason for this, the report notes, is that "there is a substantial wage premium associated with growing up in a better-educated family, and a corresponding penalty with growing up in a less-educated family." In the U.S., nearly 50% of someone's earnings can be explained by his or her parents' earnings, compared with less than 20% in Canada, Finland, Norway, Australia, and Denmark.

It's a trade-off, then. In one sense, our wealth inequality is a sign of opportunity. In another sense, that opportunity has a tendency to be based on privilege and heredity.

What do you think?

Fool contributor Morgan Housel owns shares of Berkshire Hathaway, Microsoft, and Wal-Mart. Berkshire Hathaway, Google, Microsoft, and Wal-Mart Stores are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers pick. Amazon.com and Berkshire Hathaway are Motley Fool Stock Advisor choices. Wal-Mart Stores is a Motley Fool Global Gains selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Berkshire Hathaway, Google, Microsoft, and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 17, 2010, at 3:42 PM, madmilker wrote:

    My name, my name...José Jiménez.

  • Report this Comment On November 17, 2010, at 4:40 PM, Brent2223 wrote:

    If the 'bottom 90%' had a decent standard of living I'd say the inequality is a good thing. If we're talking the difference between middle class and upper class a little healthy competition is great. But to see so many people in poverty while a very small population control the wealth is disgusting.

  • Report this Comment On November 17, 2010, at 4:53 PM, goalie37 wrote:

    I'm definitely in that 18.8%. But through the stock market I am slowly clawing my way up. Trying to fix society is, to me, a losing battle. Trying to fix your own situation (and maybe that of those around you) is much more possible.

  • Report this Comment On November 17, 2010, at 6:46 PM, laser1951 wrote:

    The gap between rich and poor is getting larger all the time. Socialism doesn't work because without incentive people tend to coast, unfortunately the easy way predominates. However while hard work and patience usually pays there is an element of luck in life and so a need for some sort of safety net. There will always be greed and abuse on the top and the bottom but hopefully it will be the exception and not the rule. Extra tax on the wealthy helps the imbalance of the opportunity gap between those who have and those who don't. The argument that taxing the wealthy keeps them from infusing money into the economy doesn't hold water. They don't use their money to buy things, they use it to make more money. The lower and middle class always will use their money to boost the economy because they need to buy things.

  • Report this Comment On November 17, 2010, at 9:34 PM, techy46 wrote:

    The road to higher income is through education which then leads to more investable income and stock ownership. Strong family values leads to higher educational goals. This usually occurs over several generations. All in the very wealthy you listed had good educations even though some did not complete degrees. Nowhere in the US Constitution is the word "fair" used. You can be very well off as a farmer and rancher and have no desire or need to own stock. Extra taxes only creates bigger government and giveaways which leads to more of the same. Wealthy people DO use their money to make more money (read invest) which create jobs. Big government gives fish to the poor, investment creates jobs for them.

  • Report this Comment On November 17, 2010, at 11:02 PM, racchole wrote:

    Wealthy people, in general, also spend more money on consumer goods, so it isn't fair to say that they only use their money to make more of it.

    I think that the point of the question has been misinterpreted. I believe the author was trying to answer the question of how income gaps affect society and the nation as a whole, and not how the behaviors of people change based on their income. If someone makes $1 million per year, they are entitled to do whatever they please with that money. The capitalist system brought that money to them, and they will provide the capitalist system by using it how they choose, regardless if that is in the stock market or by purchasing ten 60" TVs for their home. Poor people can still invest in the stock market, grow SOME wealth (even if it is just a little), and then pass that on to their kids, so that the family will incrementally become more wealthy. That is the cycle. That is capitalism. It does not matter where you fall into place. Make money, spend money, it is all relative. Forget the Constitution not mentioning the word "fair" - LIFE isn't fair. That can be said with certainty. I have no need to be super wealthy, nor should any person in the world have that desire. Life is not about financially wealthy, not one bit. That is the misguided perception dominating Americans. The minute you start believing that, then you have become misguided. All you can do is make what you can, put a roof over you, food on the table, and continue the family tree. Use the stock market to your advantage, whether it brings you an extra $100 per month or $10,000 per month. If money comes, then it comes. If it doesn't, you still have to wake up tomorrow.

  • Report this Comment On November 17, 2010, at 11:06 PM, racchole wrote:

    I myself neglected to answer the author's question. My take is this: income gaps are bad news if they prevent the poor from ever achieving anything more than being poor. But every poor person in this country cannot have the expectation of achieving great financial wealth. It just does not happen often or easily. It certainly CAN happen, but probably won't. Like I mentioned above, you have to try your best to do what you can do, and if you can't get yourself out of the "poor hole," then establish something, anything, so your children have a chance of moving up. You cannot look at one generation of people and make a determination on how fair our system is. The main concern is, are we dooming the poor forever? The answer is no.

  • Report this Comment On November 18, 2010, at 7:07 AM, Pr0metheus wrote:

    Heredity will always be a big factor of your wealth potential. Wealthy people have more resources to devote to raising children than the middle class or the poor. So naturally, children with wealthy parents will have a much better start in life, and will likely remain in the upper class. As will their children.

    Even still, having 50% of your earnings determined by factors beyond your control is unsettling. The best way to address this is to provide outside resources so that a person isn't so dependent on their upbringing. Granted, this is no small undertaking and it cannot be solved by a single, generalized method such as taxing the rich. An array of smaller, targeted solutions are required.

    One such solution would be to reform the inequality of public education. Currently, poor areas of town have lousy public schools, while the suburbs have decent (or at least better) public schools. This is because a public school's funding is largely paid for by the property taxes of the surrounding area. A person cannot control the house they grow up in any more than they can control the parents that raise them. Thus, the portion of property taxes devoted to public schooling should go to a single fund, rather than a specific school. That fund will then be divided equally amongst all public schools in the State; granting everyone access to the same quality of public schooling, regardless of the neighborhood they come from. This, in turn, provides the aforementioned "outside resource" for those who cannot afford to send their children to private schools.

    Combining this with other targeted solutions will go a long way to improving social mobility in America.

  • Report this Comment On November 18, 2010, at 8:44 AM, BMFPitt wrote:

    Income distribution, in and of itself, means nothing to me. It's a data point, nothing more. I'm more concerned (as far as income economics) with the standard of living and the fairness of the tax system than whether the top 1% own 1% or 99% of the wealth.

    Would I rather be born in a country where 20% or 50% of my income would correlate to that of my parents? Depends which one had a higher median standard of living. It's often better to be poor in a rich country than rich in a poor country.

  • Report this Comment On November 18, 2010, at 10:19 AM, dieselpham wrote:

    That mean other people such as Asian has more pressure and ability to get rich so that they will try to do their job much harder. Hiring these people might be the key to remid Human Resource Manager.

  • Report this Comment On November 18, 2010, at 9:19 PM, DDHv wrote:

    My first saving on my own was when ten cans of tomato soup were on sale. I bought the ten, and as each was used, put aside the non-sale price. Next time more saving was possible.

    My first investment was talking the landlady into letting me plant tomato plants next to the garage.

    Stocks are a matter of the last half decade or so. Don't let anyone tell you a poor person can't get ahead. Don't let anyone tell you it can be done without work, study, and good priorities either.

    Note that in the US, I've only personally known one family who could not afford a refrigerator. Mass production makes things affordable - someone needs to pay for building the factories and businesses - but why should we let the rich own ALL of it? My share may be minute, but the percentage return isn't.

    Very few families hold on to great riches for more than a few generations. On the other hand, given the chance, some poor do the study and priority setting needed. Take a look at Hernando de Soto's books for non-US examples.

  • Report this Comment On December 06, 2010, at 11:44 AM, Classof1964 wrote:

    When the very rich make large campaign contributions to influence legislators, when they hire lobbyists to get special treatment, when they anonymously finance negative political ads to defeat progressive candidates who might change the status quo, or pass regulatory reform to create a level playing field, etc., the political system has been corrupted. The result can be seen in such examples as hedge fund mangers paying 15% on their earnings (up to $500 million in a year), or in the mortgage interest tax deduction that really subsidizes the homes of the top 10%, etc. Superficial explanations of the current income and wealth disparity attribute the gap to education differences or to personal or family failings or disadvantages. The Far Right is unwilling to recognize that a significant part of success depends also on the characteristics of the social system. The current version of "Capitalism" is only one version, historically in the US and worldwide, and it has been badly warped in recent decades. At some point unless we as a society remember we used to place a value on equality and brotherhood (concern for others), and reform the current version of capitalism to create more opportunity for the 90% being left behind, we shall cease to be a great nation.

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