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Why are the Rewards of the Stock Market Unequal
Toby Mathis said, “Your utility company will not keep your lights on if you tell them you cannot pay because your stocks are down.” If the stock market can’t even keep your lights on, why does it continue to enrich only the wealthy? We read about billionaires becoming even richer and companies reaping the benefits. Why? The truth is that most of the advantages from the stock market go to wealthy individuals, instead of everyone. It is because ordinary investors lack the financial education, strategies, and resources needed to generate consistent cash flow, and this gap is exacerbated by the systems of law and government inequalities and policies that favor the wealthy.
For instance, tax laws, inheritance, and tax loopholes. According to the Los Angeles Times, Gabriel Zucman, an economist at UC Berkeley said, “the tax cut now moving through Congress will mostly benefit wealthier Americans and worsen the wealth gap.” This matters because the stock market shapes the economy, and only benefiting the minority causes a big gap between the rich and ordinary people; however, these inequalities are not individual but systemic. Government reforms and organizations— such as Future of Financial Advice (FOFA), removing fee disclosure that gave ordinary investors more transparency about fees, and the best interests duty, which forced advisers to prioritize clients, not their own profits. In addition, these gaps contribute to economic inequalities, as they worsen the negative effects that marginalized communities already face: poverty and limited opportunities.
How Wealthy Investors Gain Benefits
The stock market is basically where investors buy and sell small pieces of companies, called stocks or shares; however, the amount of money that individuals can get depends on how much they invest or how long they keep it invested. Consequently, the benefits of the stock market tend to go back to the wealthy.
Toby Mathis, who has been an attorney for 25 years, says wealthy investors focus on cash flow (regular income), while ordinary investors usually care only about whether their investments increase in value over time. This raises an important question: Why don’t lower-income individuals use the same strategies? Lower-income investors cannot adopt the same plans because they often lack sufficient capital, access to financial expertise, the ability to take risks, and the time to generate consistent cash flow over a long period of time. Therefore, the wealthy create multiple streams of income by utilizing dividends, renting stocks, and buying at discounted prices. For example, when the stock market crashes, traditional investors typically panic and sell, while wealthy investors collect dividends and cash flow; therefore, they continue growing their money. These things are very important in the stock market. Instead of just trying to earn money from an increasing stock market, focus on the money flow.
In 2023, NVIDIA’s stock increased significantly because of the boom in AI. Jensen Huang, the company’s CEO, has seen his wealth rise by over $30 billion. Wealthy investors with large holdings made huge benefits, while ordinary investors who owned only a few shares gained only a small amount. This shows how the market grows among the wealthy.
During COVID-19 in 2020, the stock market dropped at first but later recovered solidly. Wealthy investors whose money was able to buy stocks at low prices then enjoyed huge profits when the market recovered. For example, Amazon’s stock in online shopping became essential, and large investors made billions; however, ordinary investors often panicked and sold their shares early, missing out on the recovery. This shows how having extra resources allows wealthy investors to take advantage while others struggle, because they cannot implement long-term strategies and generate consistent cash flow despite the market crash.
According to ScienceDirect, written by Zhifeng Liu, Toan Luu Duc Huynh, and Peng-Fei Dai, after the COVID-19 pandemic, the stock market crash risk became significantly greater than normal in China. The study found that “the level of the market crash in 2020 was significantly higher than that in the previous period,” highlighting the intense downside caused by the pandemic; the stock market was even more sensitive in the COVID-19 era. These findings demonstrate that ordinary investors may panic and sell their shares early. These examples, like NVIDIA, Amazon, and cash flow, illustrate that without understanding the strategies, ordinary investors cannot take advantage of market opportunities, highlighting the crucial role of financial education.
Preventing the Gaps Through Financial Education
In conclusion, it may be concluded that the stock market rewards wealthy investors more because they have more financial resources, more time, and better strategies to create consistent income, which gives them a benefit during both good and bad times. Also, they focus on cash flow and long-term planning. On the other hand, ordinary investors often rely only on stock prices going up and may panic during crashes, losing opportunities. Real-life examples like NVIDIA’s AI boom and Amazon’s growth during COVID-19 clearly show that those with greater resources benefit the most.
Learning about how the stock market often benefits the wealthy more than ordinary people makes me want to change the world by creating a system where financial opportunities are equally distributed. The study of crash risk during COVID-19 and cash flow shows just how unpredictable the market is. I believe ordinary people should also have the knowledge to protect themselves from unexpected challenges, allowing them to grow money more efficiently and responsibly. Therefore, the ultimate goal should be to promote financial education and contribute to a system that is equal opportunity-based, such as suggesting an appropriate level for each person.
Like I mentioned before, looking into the feasibility, government organizations like Future of Financial Advice (FOFA) are putting their effort as they’re trying to advocate for financial education by removing fee disclosure and the best interests duty. If more people understand how strategies like focusing on the cash flow are important, the stock market will be an equal chance to earn money, rather than leaving most of the reward to a small group.
By: Minseo Sinn
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