Wednesday, December 2, 2020
Due to the inequality, the old saying "the rich get richer" has never rang more true. A study from the International Monetary Fund showed that one major factor for the widening divide is that the wealthy invest better.
Bigger and better investments lead to bigger and better returns. "The numbers show that someone in the 75th percentile of wealth distribution investing $1 in 2004 would have yielded a 50% return to $1.50 by the end of 2015. The elite in the top 0.1% would have yielded a return of 140% to $2.40 on that same dollar."
The wealthy tend to earn higher returns even on their more conservative investments.
Malacrino also suggests that financial sophistication, financial information, and entrepreneurial talent are also important factors. These factors also make returns more persistent over time.
See Shawn Langlois, Rich get richer? Here’s the math, Market Watch, November 30, 2020.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.