Rich Buy Real Estate, Poor Want Gold
If you want to know what someone's views of society are, ask what they believe is the best long-term investment.
I am fascinated each year when Gallup Poll asks Americans to choose the best option among real estate, stocks and mutual funds, gold, savings accounts and CDs, or bonds. The results are a pop psychologist's dream of cognitive issues, belief systems and ideologies. See the following chart:
Now, before we get into the details, some caveats: First, people often don't really know what they want or think. Instead, when questioning people about their hopes and desires, we end up with a distorted mass-media version of a bad Robin Leach television series. Sad but true, often we don't know what we want out of life.
Second, survey responses are not all they appear to be. There is value in the collective data, but we need to dive into the details to tease out some fascinating cultural differences.
Note what happens when we divide the survey responses along income lines. We discover some very telling things about the American psyche.
Consider the differences between what the wealthy and poor believe is the best long-term investment:
Upper-income Americans are much more likely to say real estate and stocks are the best investment, possibly because of their experience with these types of investments. Upper-income Americans are most likely to say they own their home, at 87%, followed by middle (66%) and lower-income Americans (36%). Gallup found that homeowners (33%) are slightly more likely than renters (24%) to say real estate is the best choice for long-term investments.
Now compare that with this:
Lower-income Americans, those living in households with less than $30,000 in annual income, are the most likely of all income groups to say gold is the best long-term investment choice, at 31%. Upper-income Americans are the least likely to name gold, at 18%.
The wealthy like real estate and equities; the poor prefer gold.
It isn't too hard to figure out why. Buying and investing in real estate requires several things: Steady income, saved money for a down payment and decent credit. But it also reflects a faith in the legitimacy of the local property laws and legal system; that you will be secure in that property, and no one can illegally take it from you.
Stocks are similar: Investing in them reflects a long-term faith that the nation will continue expanding its production of goods and services. Stocks are an optimistic asset class almost by definition.
It also is worth noting that starting a business requires more than capital; it requires a specific type of optimism beyond mere economic hope of success -- a belief that the existing economic, legal and governmental system, if not perfectly fair, at least isn't wildly arbitrary or capricious. In other words, your business will rise or fall on its merits.
More pop psychology: Gold is more or less portable; it often can be traded extra-legally. It is a disaster currency that will have value even in a Mad Max era when society breaks down. Gold reflects a hedge against the potential collapse of the existing order; it is a pessimistic investment.
What do you believe you think? How would you answer those questions? Have you given much thought to what you actually believe?
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Barry L Ritholtz at firstname.lastname@example.org
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