If median income people will keep all their money in stocks, then things may change quite drastically. I am wondering if this would have any power to affect the inequality gap.
As the author mentions, there is some similarity to crypto. For instance, one could use crypto to pay for things but it is infeasible in practice because in the US you would have to pay taxes on every buy trade.
For one, we'd expect average returns to go down. The flip side of that is corporate financing gets cheaper, which could spur new capital formation.
Median income people can't keep all their money in stocks consistently. At that level of income, they frequently need to draw against their savings (or more commonly can never allocate it all consistently into the market in the first place). That's a critical separation point between being at the median and being in the upper economic tiers: the need (or lack thereof) to tap your capital for major life expenses.
At a median income, step one is to have a cash buffer for emergencies. Just accumulating $5,000 in stray cash in your bank account as a life buffer is often difficult at a median income. Some emergency always wants to deplete it or otherwise move it backwards.
The reason median income persons can accumulate wealth in a house is because they require shelter. That ownership is often an expensive form of shelter and a mediocre form of investing (with a typical house property taxes will often wipe out between 1/2 and all of your home's value gain over time, if you're lucky enough to have any real value gain at all; throw in maintenance costs; then mortgage interest costs will smash another large share of your gains from actually paying down the mortgage; it's inevitably like burning a dollar but saving one corner of it and pretending it's a great form of wealth formation), however since they do require shelter regardless, it ends up acting as a very slow building form of wealth formation (via home equity).
You're at the median income. You've been careful and have accumulated $100,000 in the market. You require $50,000 of that for education expenses for your 15 year old child (you've known that all along and have expected to task a portion of that capital to that expense). 2008-2009 happens, the market tanks, it's the end of the world (according to the headlines). After the decline now you have $60k in the market and it's the year 2010. What do you do: pray it doesn't decline further or pull the capital and safeguard the required $50k? How confident are you vs your situation, circa 2010, that things are going to be ok with the market?
It's a simple example, however it perfectly illustrates why median income persons struggle to do what you're proposing. And that's a very conservative scenario that doesn't get into the countless other life emergencies that will come for you over eg 20 years of trying to build a consequential portfolio at a median income. It's not impossible, it's very difficult.
Really? Buying high and selling low is a time-honored way of losing money.
If you plan to hold for less than 10 years, then things are much more uncertain in both directions.
Is it safe to assume that stocks over the next 30 years will return more than the 2-and-a-little % of 30 year government bonds right now?
1989-2019 with dividends reinvested and inflation controlled show a return of 7.3% in the S&P 500 index. But 1959-1989 with the same parameters shows a return of 4.96% by just moving the time period back 30 years.
Arbitrary endpoints can make you justify anything, including double digit returns. But people who are saving money in the equities market that gets ever more crowded with index funds and ever more efficient should probably not count on 7-8% returns as the canonical amount they're getting back. They should plan on 5% or lower and be happy with higher returns if they come.
The P/E ratio of the S&P 500 got into the 7s!
So why does historical experience show that inflation is so bad for stocks, if it seems logically to you to be good?
It seems possible that is the way in which the future will resemble the past.
30 year treasuries currently yield 2.35%, so it seems to me going out on a limb to assume that efficient markets allow for stocks to be significantly better.
The rate for long term treasuries in the very early 80s was right in the double-digit or near double digit range that people now feel entitled to for stocks. With bonds, you can't deceive yourself as easily about the possible future. So doesn't that constrain stocks?
https://www.macrotrends.net/2521/30-year-treasury-bond-rate-...
...and if market returns over the next 30 years are going to be 2.35%, and you get to pay taxes and then have even minimal inflation, then it looks kind of irrational to take any risk at all, unless you basically have the same psychology of a lottery player.
That's not really enough to make you rich unless you're already rich, but it's enough to take a comfortable salary and turn it into a comfortable retirement. If you're on a minimum-wage, hand-to-mouth [or less] salary, yeah, you're still boned, and investing in the market isn't an option when you need every dollar available right now.