Over the next decade, one factor will create — or destroy — vast wealth. Let’s begin preparing
The next decade will witness a massive division in the U.S. between the “haves” and the “have nots.”
It’s no secret that the U.S. is facing a significant — and growing — wealth inequality problem. Presidential hopefuls Elizabeth Warren and Bernie Sanders have made this a central issue to their campaigns.
Now, this isn’t a political Digest, but it does wade into this highly-politicized issue. That’s because one of the most significant drivers of wealth inequality is what unites us here in the Digest …
But taken one step further, it’s not any investing … there’s one aspect in particular that will fuel much of the stark wealth division we’ll see in the coming decade.
On one hand, it will create exponential gains for select investors with foresight.
On the other hand, it will destroy jobs and incomes for millions of Americans.
It will be the great divider.
***The great economic sifting mechanism
A Brookings Institution study found that a quarter of U.S. jobs will be severely disrupted as artificial intelligence continues to proliferate.
The report says that roughly 36 million American jobs with “high exposure” to automation could soon be performed by machines.
The changes will hit hardest in smaller cities, especially those in the heartland and Rust Belt and in states like Indiana and Kentucky, according to the report by the Washington think tank.
They will also disproportionately affect the younger workers who dominate food services and other industries at highest risk for automation.
So, who will the winners be?
Well, the companies that develop and bring these artificial intelligence technologies to market … and the investors who have aligned their portfolios alongside them.
How many people is that?
First, we must ask who even owns stocks.
A September report from Gallup found that just 55% of Americans are invested in equities. And this number likely includes people with only a 401(k) — meaning if we want to focus on active investors like you and me, this number is even lower.
Regardless, with just this division, we’ve already chopped the nation in half.
But then, even among those who invest, we must focus only on the small cohort with portfolios that have exposure to tech stocks.
What percentage is that?
Since we don’t know specifically, let’s use market cap as a crude, blunt proxy. The technology sector in the U.S. commands roughly 26% of the stock market’s total value.
26% of the 55% of Americans who own stocks is just 14%. Of course, we have to narrow that 14% down even more because there’s a difference between someone who owns 20 shares of Apple, and someone whose portfolio is concentrated in tech to the degree it moves the needle.
So, let’s just round down to 10% of Americans and keep going.
Here’s a visual representation.
So, while potentially 36 million Americans risk having their income disrupted by technological advancements, a select 10% or so will be seeing their portfolio values benefit.
How much benefit?
Well, to give us an idea, let’s look at what some of the FAANGs returned for investors over the last decade.
While the S&P has climbed 183%, here’s what Apple, Amazon, and Netflix have returned:
Apple, up 950%:
Amazon, up 1,243%:
Netflix, up 3,479%:
So, as you can see, even within the smaller universe of “people who invest,” there’s a huge division between elite tech returns and average market returns.
***This investing “wealth divide” is likely to grow even more pronounced over the coming decade
That’s because we have to throw in two new wrinkles …
First, there’s going to be a growing discrepancy between tech returns and average market returns.
Well, one of the promises of technology is that breakthroughs will enable quantum leaps in terms of the goods and services that are offered to the public. This means the creation of brand-new industries, with explosive growth curves … that lead to explosive stock growth.
As an example, think of the iPod.
At the time it launched in 2001, there was nothing else like it on the market. So, literally zero sales. By 2008, when the product had reached the mature stage of its growth curve, it peaked at 54 million units, generating hundreds of millions of dollars for Apple.
For investors, this translated into Apple stock gains of over 2,500%.
Now, how did this compare to a market veteran with a beloved product — but a mature product — like, say, Coca Cola?
Well, as you can see below, while Apple’s explosive new technology product led to 2,500%+ gains, Coke climbed just 11%.
***We’re going to see a growing number of “iPod” type technology products in the next decade
For example, take just 5G, enabling cutting-edge advancements like remote surgery, holographic phones, driverless cars, virtual reality, and completely-connected, automated homes and cities.
How many new “iPod” products will this 5G technology support? What sort of astonishing growth curves will these products and services deliver for their companies and investors?
If the iPod is our example, then “thousands of percent” is the answer. But now, there’s potentially 15 iPods coming.
Meanwhile, as the select group of tech stocks behind these innovations begins to soar, the broader market (think “Coke”) will likely be going sideways … which will make the discrepancy between tech and everything else all the more glaring.
You see, over the last decade, the S&P has enjoyed a monster bull market. So, even “average” market returns have been wonderful. But some of the brightest minds in investing predict very different S&P returns for the coming decade — many suggesting between 0 – 4% average returns per year.
So, even within the percentage of Americans who invest, it’s likely that returns will be highly-polarized between “average, subdued market gains” and “explosive, tech-fueled gains,” furthering dividing our nation.
***As to the second wrinkle, it involves where many of these gains will be coming from
American companies have dominated the last decade of technological advancements. And while Silicon Valley will continue to create mind-boggling breakthroughs, it’s no longer the only game in town.
Much of the exponential wealth that will be made in the coming decade will be coming from a new tech powerhouse …
On Wednesday, The Wall Street Journal ran an article which you might have skipped over. It detailed how the Chinese government has set up a $21 billion tech fund.
From The Wall Street Journal:
The government-backed fund of 147.2 billion yuan ($20.9 billion), established Monday, will invest in companies working on areas including new materials, next-generation information technology and electrical equipment …
Those three areas are among the 10 cutting-edge sectors that China has prioritized in its “Made in China 2025” plan to dominate globally in technology.
It turns out, this is the second tech fund Beijing has sponsored within weeks. In October, China set up a semiconductor fund, totaling roughly $29 billion.
Now, how many American investors are looking toward China for the coming decade’s tech gains?
I don’t know, but I imagine it’s about the same as the red dot below …
***It’s one of our goals to bring you the investment information you need to be a part of tech’s exponential gains
Matt McCall, Eric Fry, and Louis Navellier have all — independently — positioned their subscribers in various Chinese technology stocks. Matt has even gone so far as setting up unique China-tech themed portfolios within his broader array of recommendations.
If this is a new investment idea for you, I’d strongly encourage you to begin looking into how to get Chinese exposure for your portfolio. We’ll keep bringing you ideas here in the Digest.
As we wrap up, earlier this summer, we wrote about Ray Dalio, the billionaire founder of the investment group, Bridgewater. In short, Dalio believes we’re entering a new “paradigm” in the markets, and many investors won’t be positioned for it.
The worst thing one can do, especially late in a paradigm, is to build one’s portfolio based on what would have worked well over the prior 10 years, yet that’s typical.
With this in mind, as you look at your portfolio, is it built upon the broad-market gains of yesterday? Or it is primed for the tech-explosion of tomorrow?
Technology will be the single greatest wealth divider in the United States over the next ten years. You can either ride it higher or be run over by it.
Let’s all begin to prepare today.
Have a good evening,