According to a recent news article in CNN Money, the personal wealth for the median American household may have dropped by as much as 40%, between 2007 and 2010. It’s no wonder the middle class is feeling significantly poorer, because they are. Not only did housing drop, the stock market tanked at the same time. Combined with high unemployment and lower wages, this is a tough time for millions of Americans.
Where did all the Wealth Go?
Most of the wealth disappeared from homeowner’s equity. Not only did home prices drop, but a significant number of Americans refinanced out their home equity and spent it. Millions of others lost their homes to foreclosure, along with any equity that previously existed. Since home equity is often the largest store of wealth for middle class Americans, they were hit the hardest.
The stock market crash was devastating to employee’s retirement accounts. The panic during the crash caused millions of people to move their funds out of the stock market at the worst possible time. They inked a permanent loss, even though the stock market has largely recovered. Once again, this hit the middle class the hardest, because a high percentage of their wealth was stored in their retirement accounts.
Although these statistics look bleak, this time-period represents the absolute worst case, from an over-inflated high, to a post-crash low. Housing prices have stabilized in most areas and the stock market has regained most of its losses.
- Median net worth declined nearly 40%
Source: Federal Reserve
- Median household net worth declined 35%
- Median stock & mutual fund portfolios dropped 33%
- Median home equity value dropped 28%
Source: Census Bureau
How I Prospered
Although my home equity dropped by hundreds of thousands of dollars, it meant nothing to me. My house was way over-valued in 2007 and now it is closer to reality. I plan to pay off my home and retire in it, so I don’t have to worry about the value. My only concern is with the balance on my mortgage and that has dropped a lot in the past five years. The interest rate on my adjustable loan is under 4%, while I continue to pay extra each month.
My stock portfolio was very aggressive and it dropped by 40%. This really hurt both my psyche and my wallet. It set me back years in my investment plan. But, I took advantage of the low stock and fund prices after the crash to rebuild my portfolio. I doubled the amount of my monthly investment and got myself back on track in a couple of years. I held on to all of my investments, instead of cashing them out at the bottom. My portfolio is now 50% higher than it was in 2008 and I am very happy about that.
The Bottom Line
The bottom line is that recessions and stock market crashes happen regularly. Not only should you plan and be prepared for this, you should try to take advantage of the unique conditions to help restore your wealth.
“The most perfect political community is one in which the middle class is in control, and outnumbers both of the other classes.”
Aristotle – Greek Philosopher
Bucksome Boomer – The Power of Saying No to Preserve your Retirement
Krant Cents – What Should you Do?
Money Counselor – American Family Money Status