Seems to me to be a simple consequence that rich people disproportionately have assets held in stocks or broad market funds. Only a small fraction is held in low earning products like savings, cash, or bonds. Conversely, poor people either don't have any assets at all, or keep the majority in low yielding accounts such as savings.
Risk adversity is a big driver of that, since losing your emergency fund or savings is catastrophic for someone with no other assets, whereas losing some of your large stock portfolio is something rich folks shrug off.
The article specifically calls that out as “conventional wisdom.”
“Conventional wisdom suggests that richer individuals put more of their assets toward high risk investments, which can result in higher returns. But our research finds that wealthy people often earn a higher return even on more conservative investments.”
Could this not be explained purely because of access to better funds? For example: Vanguard charges a higher expense ratio on the funds that are under $3000 in investment. Above $3000 you get 'Admiral' class with lower expense ratios. Even above that, there are 'Institutional' class funds that have an even LOWER expense ratio (with minimums of $5M).
I imagine similar examples exist at other firms, companies, etc.
Agreed. Those properties, along with the impact of compound interest. However, another point I have is that similar yields are accessible by non-0.1 percenters by just buying a broad-market low-fee index fund like VTI/VTSAX.
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Seems to me to be a simple consequence that rich people disproportionately have assets held in stocks or broad market funds. Only a small fraction is held in low earning products like savings, cash, or bonds. Conversely, poor people either don't have any assets at all, or keep the majority in low yielding accounts such as savings.
Risk adversity is a big driver of that, since losing your emergency fund or savings is catastrophic for someone with no other assets, whereas losing some of your large stock portfolio is something rich folks shrug off.
The article specifically calls that out as “conventional wisdom.”
“Conventional wisdom suggests that richer individuals put more of their assets toward high risk investments, which can result in higher returns. But our research finds that wealthy people often earn a higher return even on more conservative investments.”
Could this not be explained purely because of access to better funds? For example: Vanguard charges a higher expense ratio on the funds that are under $3000 in investment. Above $3000 you get 'Admiral' class with lower expense ratios. Even above that, there are 'Institutional' class funds that have an even LOWER expense ratio (with minimums of $5M).
I imagine similar examples exist at other firms, companies, etc.
Agreed. Those properties, along with the impact of compound interest. However, another point I have is that similar yields are accessible by non-0.1 percenters by just buying a broad-market low-fee index fund like VTI/VTSAX.