Stop Working, Start Investing

In predictable fashion, I’m gonna take on a very unpopular topic today. Or maybe I should say that I’m going to offer a very unpopular opinion on a popular topic. So get your hate mail ready. You can even light me up on Twitter if you want: @BritonRyle.

Now, to set the stage, this issue — my topic of the day — was central to the last presidential election. Both of the most polarizing candidates ran on basically the same platform: You’ve been screwed. I can fix it.

Donald Trump told America that we have been screwed by globalization and bad trade deals. He vowed to renegotiate trade deals and adopt “America First” policies that would return the American middle class to our former glory. 

Bernie Sanders told America that we have been screwed by the wealthy elites who own Congress and have steered policy to benefit them. His solution was free college and more Medicare spending. 

Both of these arguments are compelling, for two reasons. One, there’s a lot of great statistics that would seem to back them up: 

• America’s top 1% now control 38.6% of the nation’s wealth.

• The bottom 90% of Americans’ share has been falling steadily for 25 years, hitting 22.8% in 2016 from 33.2% in 1989.

• The top 1% saw their share of income rise to a new high of 23.8% from 20.3% in 2013.

• The income shares of the bottom 90% fell to 49.7% in 2016.

The rich are clearly getting richer. And it sure looks like they are getting richer as the middle and lower classes get poorer.

But don’t worry; if you believe your politicians, it’s not your fault. It’s the wealthy and the Chinese and the Mexicans’ faults…

That, by the way, is reason #2 that the “you’ve been screwed” crap resonates so well. I’m not trying to be a jerk about this, but I think we all know that the temptation to blame others when things don’t go our way is pretty strong. I think we also know that politicians are happy to turn our fears and insecurities into talking points…

Why the Rich Get Richer 

I’m going to share another statistic with you that is the real reason the rich are getting richer.

The top 10% income households now own 80% of the stock market. 89% of families that earn more than $100,000 a year own stocks. 46% of American households own no stocks at all. No 401(k) plans, no IRAs. Stock ownership for the middle class is just 27%. That’s basically an all-time low. 

Ever since the stock market crash of 2008–2009, average Americans have been scared out of the market. They have missed one of the best moneymaking opportunities ever. And the stagnant household wealth numbers tell the story. 

The rich have gotten richer because they’ve been invested in stocks. And you know what? They’re going to keep making money. Because if you think about it, cutting the corporate tax rate really is a tax cut for the wealthy…

I don’t mean the tax cuts were a deliberate move to benefit the wealthy. But if the wealthy are the ones who own stock, well, they will benefit from higher dividends and share buybacks. 

Check out this chart: 

This chart shows that corporate profits are surging due to the tax cuts. Sure, wages are rising a little, but not as much as profits. 

Now, I’m sure some people will say this is unfair. Shouldn’t companies pay their employees more if they are making more? In theory, I guess, sure, maybe they should. But this is America, the freest economy in the world. And perhaps the most basic aspect of that freedom is that you can do what you want with the money you make.

I’m sorry anyone believed companies would just give everybody a raise after the corporate tax cut. That was obviously never going to happen. Companies don’t exist to pay people. They exist to provide a product or service in exchange for money.

Labor is typically the single-biggest expense for any company. I don’t find it shocking that companies with very thin profit margins like Walmart or Ford do all they can to keep these costs down. 

I also don’t find it shocking that when companies get a windfall like the corporate tax cut, they use the money to reward the owners of the company with dividend hikes and share buybacks. This is the benefit of our capitalist system: anyone can be an owner by owning stock. 

$850 Billion Coming 

Here’s the deal: economies change. And the changes over the last 30 years (as China became a true economic power) are unprecedented. We have a choice. We can lament the change and reminisce about the good ol’ days and how much better everything was. Or we can sack up, make an honest attempt to understand the global economy, and then seek out the opportunity. 

And here’s an opportunity. Corporations are going to repatriate as much as $850 billion this year. That’s just a huge amount of money. And I’ll tell you right now: it means higher dividends and share buybacks. 

So, buy stock. Become an owner in a great American company. If you qualify for a Roth IRA and don’t have one, get one. 

And I think Cisco shareholders will be among the biggest winners of the $850 billion repatriation sweepstakes.

Until next time,

Briton Ryle

@BritonRyle on Twitter

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.