Stock Market Recovery, the Wealthy, New Normal

I said to a long-time client, "how could you have lost money if you have more money today than you did then".  

It was 2010 and I was reviewing the client's portfolio and returns since inception with me.  I was showing him recent gains when he said, "just think how much money he lost in 2008".  That's when I pointed out that net of contributions and withdrawals, the market value of his portfolio was higher at that point that at the end of 2007. So I said, "how could you have lost money if you have more money today then you did then".  He then said, "well you know what I mean".  

I then said, "if you bought a vintage antique car for $10,000 and two years later someone offered you $7,000 but you did into sell it and two years after that you sold it for $12,000, did you lose money?"  He said that's different. Shortly after that, he found a new smarter financial planner.  Some business days are better than others. 

I would suggest the only time an investor makes or loses money on any investment is when it is sold and the rest of the time the investor simply looking at a statement with the current market value if it was sold.

Though never guarantees of the future, I believe the stock market will recover just as it has in past years.  There are several reasons for this. One is as follows.  

The US reduced corporate tax rates in 2017 which had benefits to US corporations.  One benefit was many corporations used the extra cash to buy back their own stock.  This is not to debate the value of corporate stock buybacks but it is clear it happened. When corporations buy back their stock, the market value of the company's stock generally increases because there are now fewer total shares.  This means the very wealthy who own stocks net worth increases.  

A recent study found the top 10% of the wealthiest in America control 84% of the total stock holdings.  A different survey from the Federal Reserve Board found the top 1% own 50% of the stocks.  

Part of the current stimulus package is to benefit corporations in the form of loans.  

So, a cynical person could make the case corporate taxes were reduced enabling corporations to buy back stock increasing the market value of the stock of which 84% is controlled by wealthy investors which drove the stock market up which now has declined because of the coronavirus pandemic and now requires taxpayer money to provide low-interest loans so corporate stock will go back up restoring market values to wealthy investors.  

A cynical person would say this, not me of course.  

But there is a benefit to all of us.  First of all, for a moment stop thinking of stocks as an investment in the stock market. Rather, think of them as ownership in public US corporations or businesses which, of course, they are.  These businesses provide products and services ranging from entertainment, tech products/services, manufacturing, agriculture, travel, retail distribution to name a few. Some public companies may struggle for a long time going forward.  Others may have a minimum effect short-term.  And others may not be affected at all.  Also, it is very likely many businesses may have to change and adapt to a new normal in the future, but most will.

Now, remember, for the very wealthy to stay very wealthy, large public corporations who provide these products and services must continue to do so and be profitable in so doing.  This means that the very wealthy have a strong vested interest in a full stock market recovery which is a reflection of healthy corporations.  If this happens, just like after past declines, market values will be restored.  More important, at least to the very wealthy, is they will stay very wealthy.  

Keep in mind, what is good for the very wealthy, is not necessarily good for the other 90% of US citizens and workers. However, keeping this discussion specifically related to the stock market, the financial objective of the very wealthy is for the stock market to recover is good for all those who have part of their financial assets invested in the stock market.  

It is also good for anyone who owns any type of financial asset, has a pension or depends on social security.  The reason, a recovering stock market means public corporations are generally doing well and people who are working for these corporations are earning an income and paying taxes.  This is good for all of us.   

Though never guarantees for the future, where have you heard that before, I do believe the stock market will recover.  I also believe we are at the beginning of a new normal which will affect all of us, from the very wealthy to those who are much less fortunate.  If I am correct, among other things, this will affect how all of us plan and invest in the future.