Here’s the message I’ve been delivering over the past week or so. By now, it’s practically a “mantra.”
The economy is humming, we’ve got nearly full employment and the stock market keeps rising. Yet the net worth of America’s lower and middle classes keeps plummeting.
As one of my wealthy friends said recently, it’s as if a giant drawbridge is dividing our country in half. On one side are the rich — who fully understand what’s happening and are taking full advantage of the situation. On the other side … well … there’s everyone else.
I’ve been calling this wealth gap the “Technochasm.”
Today I’m going to dig into what, exactly, it is that the rich are fully understanding … and too many of the rest of us aren’t. It’s the “secret formula” that’s fueling this wealth gap.
Only one in 1,000 investors — maybe fewer — understand this formula.
In short, to create wealth in our world today, you must invest in the most innovative, fastest growing tech companies out there. Given this reality, a highly select group of business owners, key employees, and investors are enjoying huge financial returns from tech … distancing themselves from everyone else – even from “average” market investors.
That’s going to continue, whether we like it or not.
As investors, we can either jump on board … or find ourselves on the wrong side of the Technochasm.
Get on the Right Side
You could separate Americans into three broad groups:
- The huge percentage of Americans who don’t invest.
- The many Americans who do invest, but have their money mostly allocated to traditional sectors. If they do own “tech,” it’s not a substantial percentage.
- The small, select group of owners, employees, and investors who have a significant allocation to technology and are, therefore, accruing the majority of tech’s gains.
So, how distinct are these groups?
Well, a September report from Gallup found that only 55% of Americans are invested in equities. So, 45% of the nation doesn’t own a single stock. This group not only are not benefiting from tech’s wealth creation, but they’re also at risk of being victimized by it.
And here’s the even worse news for this group…
A study by the Brookings Institution found that a quarter of U.S. jobs will be severely disrupted as artificial intelligence continues to accelerate. The report says that roughly 36 million American jobs with “high exposure” to automation could soon be performed by machines.
Now, what about the second group, the 55% of Americans who do invest?
The bull market over this last decade has been great for them. Having money invested in the S&P 500 Index for the last 10 years has brought 200%-plus returns. Obviously, this alone is a huge separator between the 55% of the nation who invests and the 45% who don’t.
But now, let’s get more granular, because among “those who invest,” there’s a massive delineation between “tech investors” and everyone else…
As our first illustration, take a look at the SPDR Technology Sector ETF (NYSEARCA:XLK). It holds tech heavyweights including Microsoft Corp. (NASDAQ:MSFT), Apple (NASADQ:AAPL), Intel (NASDAQ:INTC), and Cisco Systems (NASDAQ:CSCO), to name a few.
Consider how XLK has done over the past decade, compared to the average S&P investor. The XLK is up over 450% while the the S&P 500 gained 212%.
More than double the return. And remember, this is from an exchange-traded fund — a broad basket of stocks, many of which probably underperform … and a few absolute losers.
The challenge is that many investors aren’t significantly exposed to these tech gains — and never have been. Their portfolios were (and are) filled with many other sectors, some of which actually destroyed wealth.
Just think about energy…
An Empty Tank
For decades, energy stocks have served as the rock-solid pillars of Americans’ portfolios, and that made sense for a long time.
In 1980, the top five largest components of the S&P included three energy-related companies – Exxon, Standard Oil of Indiana, and Schlumberger (the other two were IBM and AT&T).
Even as recently as 2000, Exxon was still the second-largest piece of the S&P 500 (behind General Electric), with a market cap of $302 billion at the time.
But if you had blindly remained heavily exposed to energy in the years since, your portfolio has suffered.
Consider the Energy Select Sector SPDR ETF (NYSEARCA:XLE). It holds oil heavyweights including Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP), Schlumberger (NYSE:SLB), Occidental Petroleum (NYSE:OXY) and Valero Energy (NYSE:VLO) to name a few.
Below, I compare the XLK with the XLE over the past 10 years. This one chart is a great illustration of why the wealth gap is widening, even among investors.
This differential is even more pronounced if we look at returns over the last five years.
Below, see how the average tech investor is up nearly 200%, while energy investors have not only missed these gains, but have watched their investment capital gutted by 31%.
This is the Technochasm at work. This division is going to continue — and intensify.
Tech makes our lives easier, so we’re going to continue buying it, subscribing to it, and using it — fueling tech profits for years to come. Even those Americans who aren’t invested in tech will open their wallets for its goods and services, rewarding tech investors.
Over the course of this decade, there will be “elite tech” returns … and then “everything else.” Will you be positioned for it?
To learn more about my research on this issue, click here.
I’ll be back here soon with another angle on the Technochasm.
Regards,
Eric Fry
P.S. Something remarkable happened to me recently while visiting America’s richest ZIP code, which is located far from Manhattan, Palm Beach, and Beverly Hills. First, someone smashed my car windows and stole thousands of dollars’ worth of video equipment.
But the good news is, I also found an incredible opportunity that could make you a lot of money – and it has nothing to do with real estate. I think this could be my next 1,000% winner. I’m giving away the details here.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south. Eric does not own the aforementioned securities.
