The Dow Jones Industrials (^DJI 0.67%) jumped almost 99 points on Thursday, joining the S&P 500 (^GSPC 0.87%) at a new record high, and showing the continuing strength of the U.S. stock market overall. Indeed, the stock market has played a vital role in boosting the net worth of the U.S. population, according to a Federal Reserve report released today. Let's take a closer look at the report and how it likely affected your finances.
Federal Reserve building. Source: Dan Smith.
Getting richer
The Fed's statistical release on the Financial Accounts of the U.S. provides an upper-level picture of how the economy is doing in terms of creating wealth. As of the end of the first quarter, total household net worth rose to almost $81.8 trillion, up almost $1.5 trillion from the end of 2013. As impressive as that pace appears, it actually represents a slowdown from 2013's growth rate, with net worth soaring by more than $9.4 trillion during the four quarters of last year.
What's interesting, though, is what the source of that greater wealth was. The value of corporate equities and mutual fund shares jumped by a total of $361 billion, which equates to roughly a quarter of the overall increase so far in 2014. Yet, as we saw during the housing boom, real-estate values played a much more important role in the rise of household net worth, with a jump of about $750 billion representing fully half of the overall gain in American wealth.
One of the more interesting things about the Fed data is what the report says about asset allocation among American households. Real estate makes up about a quarter of overall assets, with outstanding mortgages reducing net investment in real estate to about 15%. Among financial assets, deposits make up about 15%, credit-market securities like bonds amount to less than 10%, and stocks and mutual funds add up to about a third. The remainder is included in the present value of expected pension payments and in direct investments in businesses like sole proprietorships and partnerships.
If nothing else, the Fed report puts some perspective on the role that stock market investments have on the overall wealth of the American people. As important as movements in the Dow Jones Industrials are to investors, what happens with home prices has a far bigger impact on the net worth of millions of Americans with little or no money invested in stocks or mutual funds. As a result, even if you count yourself among the investing class, you shouldn't forget that the vast swath of Americans pay little attention to the activity of the Dow Jones Industrials in their own financial lives.
