Financial wealth and the distribution of income Available to Purchase

The gap between wealthy and poor is widening, in part due to the epochal rise in the value of financial assets. Middle‐class savers channel their monthly contributions into mutual funds, which in turn invest the money in stocks and bonds. These accounts then accumulate, and the gains are largely tax‐free until they are liquidated. Savers who began contributing early, or who set aside more each month before the stock market rally, are now massively ahead of those in their cohort who did not. The accumulated stock market holdings, and the hair‐trigger switches from one mutual fund to another, make the stock market a mammoth and fickle force. Over the next 20 years the value of financial assets may exceed five times the value of world output. Its power to reward and punish corporate managers and governments is unprecedented. The financial wealth accumulation dynamic is now entrenched, and will continue. Managers can assess its implications, and adjust their plans accordingly.