The Federal Reserve has finally released the Flow of Funds (Z.1) data for the second quarter of 2019. Among the many things contained within the report, the Fed revealed that U.S. household (and non-profit group) net worth rose by $1.85 trillion in Q2 to a total of $113.46 trillion, a 1.66 percent quarter-over-quarter increase and a new all-time high.
Compared to this same period last year, total net worth lifted by 4.93 percent in Q2, below the cycle average (6.04 percent) but still a marked improvement from the near decade-low hit in Q4 2018 (0.65 percent). The second quarter’s gain was in part driven by real estate, which expanded by $0.26 trillion as residential real estate, the biggest asset for most Americans, benefited from home values continuing to appreciate faster than the pace of general household inflation. Mortgage liabilities also rose in the second quarter and contributed to an acceleration in overall consumer debt growth, but mortgage obligations as a percent of GDP still ended Q2 at the best level in almost two decades.
Another driver of the second quarter’s net worth gain was the $0.88 trillion rise in the value of directly and indirectly held corporate equities, e.g. stocks and mutual funds. This was to be expected since the S&P 500 rose by 3.79 percent in Q2, a healthy increase following Q1’s 13.07 percent surge. Equities continued higher in the just-ended third quarter but due to a handful of spikes in volatility over the past few months the Q3 Z.1 update will likely show that the boost to net worth was smaller. Regardless, real wealth creation often occurs over a much longer time horizon because investors can therefore benefit from decades of diversified exposure to stocks and capitalize on the resiliency of the market.
One of the best ways to participate is through the use of a 401(k) retirement plan, which provides a variety of tax advantages and in many cases can be augmented by an employer’s matching contributions. The rapid rise in the adoption of both automatic enrollment and auto-escalation is helping ensure that more Americans each year are fully-utilizing these powerful savings vehicles. That is good news because consistent 401(k) plan participation, combined with dollar-cost averaging and regularly working with a professional financial advisor, can help investors navigate volatile markets and in some cases even turn large drawdowns into opportunities. As always, we are here to help with any questions you may have.
Sources: FRBG, J.P. Morgan, Twitter, Calculated Risk, FRBSL
Post author: Charles Couch