Enjoy the Ride

(Merriam-Webster illustration)

This hypothesis makes sense once one thinks about it:

Inequality in Society Drives Stock-Market Performance [bold added]

The argument is pretty simple, as laid out by Jacques Cesar, a former managing partner at Oliver Wyman now leading a research project for the management consultancy: The rich save more and are more willing to take the extra risk of putting their savings into stocks. Mr. Cesar calculates that one household earning $1 million a year would put about 20 times as much into stocks as the total invested by 20 households each with an income of $50,000, based on averages for their income groups, even though their overall income is the same. Raise inequality and demand for stocks goes up, and so do prices.

The rich not only save a greater percentage of their income, they also invest in riskier assets, e.g. stocks, that over time produce a higher return.

Every investor benefits from a rising stock market, but a rich investor benefits disproportionately more, putting even more distance from the rest of society.

The conventional wisdom is that the stock market makes millionaires out of startups' founders and creates inequality. But it also may be true that inequality causes the market to rise. If we do have a "virtuous circle," enjoy the ride