Do You Feel $2.95 Trillion Richer? The Fed Says You Are

The latest Federal Reserve report on total U.S. net worth rose to $80.7 trillion in the fourth quarter. Did you get your share?

Mar 7, 2014 at 12:30PM
Longview

We already knew that last year's fourth quarter was a strong one for the Dow Jones Industrials (DJINDICES:^DJI), with the average jumping by almost 10% and capping an impressive performance throughout 2013. But what many might not realize is the role that stock market gains played in boosting overall household wealth in the U.S., as the Federal Reserve said that rising stock values helped to increase the nation's net worth to record levels.

Measuring net worth
Every quarter, the Fed comes out with a statistical release giving detailed data on American wealth. In the fourth quarter of 2013, household net worth soared to $80.66 trillion, a rise of $2.95 trillion, or 3.8%, according to figures released Thursday. That was the fastest rate of gain since the first quarter, and it closed out a year in which net worth climbed by $9.8 trillion. At almost 14%, 2013's pace of growth was the highest since 2004.

Fed
Federal Reserve Board Building. Image source: Wikimedia Commons.

Fortunately for investors, gains in the financial markets represented a huge portion of the rise in net worth last year. Of that $9.8 trillion total increase, $5.6 trillion came from the rise in the value of the stocks and mutual funds that households owned. In addition, the increase in real-estate values also contributed a big piece of rising net worth for Americans. The Fed report tied almost a quarter of the increase in 2013, or $2.3 trillion, to residential real estate.

One key question, though, is how those gains were allocated across the population. Obviously, with investment gains driving much of the overall increase in wealth, households that don't own any investments missed out on the opportunity to boost their net worth. Yet it also pointed to the need for investors to take a more aggressive stance with their investments, as those who concentrated solely on bonds likely didn't get their fair share of the gains.

Sluggish personal borrowing continues
Meanwhile, on the other end of the personal balance sheet, overall nonfinancial debt levels rose at an annualized rate of 5.4%, but households contributed only a very small portion of that growth. Fed data showed household annualized debt growth of just 0.4% in the fourth quarter and 0.9% for the full year. By contrast, business and federal government borrowing continued at elevated levels, with business debt growing at an annualized 7.1% and federal borrowing soaring 11.6%. State and local governments continued their trend toward austerity, though, with a plunge of 4.9% on an annualized basis in the fourth quarter.

Borrowing trends play a key role in the health of the overall economy. For instance, even though homebuilders Toll Brothers (NYSE:TOL) and PulteGroup (NYSE:PHM) posted reasonable share-price gains last year on the strength of rising home prices, the pace of gains in the homebuilding sector was slower in 2013 than in 2012. Moreover, as signs of sluggishness in the home sector appeared and interest rates rose, mortgage lenders Bank of America (NYSE:BAC), Citigroup (NYSE:C), and many of their peers started to see pressure from declining mortgage-refinancing activity, and some fear that falling purchase activity could be the next step.

Get your fair share
In the end, what the Fed's latest net worth report shows is that when times are good, investing is a key element of financial success. Without investing, you'll leave yourself less able to benefit from boom times in the U.S. economy and the stock market.

Unfortunately, millions of Americans haven't gotten that message, staying out of the market since the market meltdown and missing out on huge gains. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Dan Caplinger owns warrants on Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and Citigroup. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers