New data from the Federal Reserve shows the average American household is actually wealthier than it was before.
The Fed noted a 1% bump in wealth over their last reporting period. This is significant because we’re in a cycle where it seems like a lot of families are poorer and struggling. The problem is that much of the last 25 years up until the housing bust, many believed that the ticket to long-term wealth was to own real estate.
We all know how that turned out. The new dividing line has becomes that families and individuals who don’t own capitalist enterprises have seen their wealth decline, while those that do have seen their wealth rise.
But if I’m not talking about real estate as a way to gain wealth, what do I mean when I say “capitalist enterprises”? Well, that can mean owning a business for sure. Yet for most people, it means being an investor and buying mutual funds, individual stocks, index funds or exchange-traded funds through your 401(k) at work or your IRA.
Over time, wealth flows to owners (read: investors) in a capitalist system. Homes, on the other hand, trend at the rate of inflation, plus a little bit more because land is a shrinking resource as population grows. Real estate is not the get rich quick plan, though neither are stocks.
Yet the latest numbers from the Federal Reserve show that wealth will still flow to you when you invest your money, especially if you have a long horizon before retirement. It doesn’t matter what your income is, the important thing is that you are saving a portion of your money each and every pay period each month that goes into investments.
Investing can be done with something as simple as a target retirement fund. See my investment guide linked below for more info about that and other options, based on your skill level as an investor.
And think about this with a house: Houses depreciate over time. It is the intrinsic value of land that gives you the rise in value. But the house itself requires maintenance and repair and basically eats up your resources. It’s a good deal as a place to live over time, but it’s not the ticket to wealth that many Americans have long considered it.