I’m an Economist: How To Get Ahead When the Stock Market Is High but Your Finances Are Low
Written by
Jordan Rosenfeld
Edited by
Jenna Klaverweiden
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The stock market has hit some record highs in 2024, reaching numbers that make the economy look positively unshakable. But what does a high stock market mean to the average person?
If you’re feeling the bite of high inflation, wage stagnation and difficulty getting ahead, a winning stock market might not mean much to your low finances.
How do you take advantage of this stock market bounty and get ahead in your own finances? Economist Michael Collins — adjunct faculty of economics at Endicott College and CEO of WinCap Financial, a wealth management firm — offers a broad understanding of the stock market’s impact and tips for getting ahead financially.
Stock Market Gains Impact Segments Differently
The most important thing to understand is that while a healthy stock market may be a sign that the economy overall is doing well, the people getting rich when the stock market is up are not always the average working-class Americans.
Stock market gains don’t affect everyone the same, either, Collins explained. For younger people, those under 30 or 40, who are facing high inflation along with high interest rates, everything seems unaffordable, he said. Thus, they are less likely to feel the benefit of stock market gains.
“Meanwhile, grandpa and grandma who are in retirement living off their fixed nest egg, they’re going to appreciate those high stock prices, which benefit mostly the baby boomers or maybe people above 50 who already owned a home, saw that appreciate, already owned a portfolio of stocks, and saw that appreciate,” Collins said.
The other people benefiting may be those who invested in stocks like Nvidia (NVDA) or HubSpot (HUBS) that have gone gangbusters and earned people millions of dollars.
Does It Trickle Down?
Some of the stock market’s gains do trickle down in ways that might be harder to see. For example, Collins said, entry-level wages for new college grads have swelled. Collins recalled that starting out at his first job out of college in 2005, he earned $30,000. Whereas in hiring an entry-level position at his company now, he has to pay $80,000 to be competitive.
“But that employee is faced with the same problems as everyone else: He’s going to live at home and save money so he can afford a house in the next three years or something like that,” Collins said.
Inflation Wipes Out Gains for the Average American
If you don’t have a big stock portfolio and aren’t living off dividends from stocks like the wealthy, then inflation takes a much heavier toll on your finances, regardless of what the Nasdaq hit that day.
“If you look at some studies, the bottom of the labor pool has seen the biggest increase in wages, but if you get a 25% raise, but your cost of living goes up by 20%, you’re still not going to be pleased about it …” Collins explained.
The solution to this problem is not an easy one. “The solution to high inflation quickly is economic pain. And no one wants to be like, oh, I have the perfect recipe to get rid of inflation. You just lost your job,” Collins said. “So life’s all about trade-offs, which is kind of at the hard part of economics, right?”
Be Sure To Budget
Getting ahead now takes a more strategic approach, Collins said. You must be sure to start with a budget to get out of overspending habits.
“If you look at people in terms of spending, people who have the luxury of eating out are way higher. It’s the standard to go out and eat at a restaurant two or three days a week or do an expensive Uber Eats. And that’s really a luxury. But people have gotten used to it,” he said.
And that’s just one way people spend thoughtlessly without a budget.
Increase Your Income
Another way to get ahead is to take on a side gig. “It’s never been easier in a thousand years to turn on income,” Collins said. “If I was financially struggling, I could start Uber driving tomorrow and make money, and I don’t have to go for a job interview, I don’t have to do anything. I just need to take my car and drive it around and I can make money fast.”
In the past, he said, “The time period between wanting to make money and making money was way longer. You could be waiting a month to make money. Now if you need to make money, you can pretty quickly.”
Open a Roth IRA
For younger folks, he recommended you start saving for retirement, with a Roth IRA investment account. “It’s just a great vehicle [for saving].”
While a healthy stock market tends to mean there’s lower unemployment and that any stocks you have invested are probably on an upswing, it’s not an excuse to get lazy about your finances. Being diligent will enable you to be prepared for when the stock market takes a dive again, which historically is likely to happen again, sooner or later.
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