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

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.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

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