Warren Buffett and Jeff Bezos
Lacy O’Toole | CNBC; Getty Images
The fortunes of America’s richest men, including Warren Buffett and Jeff Bezos, increased by a combined $6.5 trillion last year, largely due to soaring stock prices and financial markets, according to the Federal Reserve.
The total wealth of the top 1% reached a record $45.9 trillion at the end of the fourth quarter of 2021, according to the Federal Reserve’s latest report on household wealth. During the pandemic, their wealth increased by more than $12 trillion, or more than a third.
“The numbers are staggering,” said Edward Wolff, an economics professor at New York University. “The pandemic wealth boom certainly ranks at or near the top of all the wealth booms of the past 40 years.”
As of the end of 2021, the top 1% owned a record 32.3% of the nation’s wealth. The share of wealth owned by the bottom 90% of Americans fell slightly before the pandemic, from 30.5% to 30.2%.
Wealth growth at the top end could be somewhat stalled or reduced this year due to falling stocks.
Stocks and private businesses were the main drivers of wealthiest Americans last year. About $4.3 trillion of total income for the top 1% last year came from corporate stocks and mutual fund stocks, according to the Fed. According to the central bank, the top 1%’s stock portfolio is now worth $23 trillion, and they own a record 53.9% of private stocks.
Despite claims of democratizing the stock market, with millions of new retail investors opening trading accounts on Robinhood and other platforms, American stock ownership is more concentrated than it was before the pandemic. The top 10% owned a record 89% of privately owned corporate stocks and mutual fund stocks at the end of 2021.
In 2021, Gallup found that 56% of Americans owned at least some stocks, up slightly from the 55% average in 2019 and 2020, but down from the pre-2008 financial crisis high of 62%.
More wealth inequality
Rising stock prices have created a “feedback loop” for wealth and inequality, says New York University professor Wolff. As stock ownership shifts toward the top of the wealth ladder, rising stock prices transfer more money to wealthier Americans. Because the rich are able to save and invest much of their extra wealth, much of the nation’s wealth ends up in the stock market. This will further increase the share price.
“Increasing wealth inequality stimulates the stock market, which then increases wealth inequality,” Wolff said.
Private business was also a powerful engine of wealth for those at the top. According to the Federal Reserve, 1% own 57% of private companies. The value of private businesses held by the wealthiest grew 36% last year, or $2.2 trillion.
“Small businesses are really important when it comes to their sources of wealth,” Wolff said.
The top 1% also benefited marginally from rising property values. During the pandemic, their real estate holdings increased by $1 trillion to $5.27 trillion.
But their share of the nation’s real estate has fallen slightly during the pandemic, as home prices and home ownership have risen in the rest of the country as well. Real estate is more widely owned than stocks, so rising home prices have helped the middle class more than the wealthy. The top 1% owned 14% of the country’s real estate at the end of 2021, down from 14.5% at the end of 2019 before the pandemic.
The bottom 90% of Americans added $2.89 trillion to their wealth last year from real estate.
“The housing boom benefited the middle class,” Wolff said. “Without it, wealth inequality would be even greater.”