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The great wealth implosion

By Judy Martel · Bankrate.com
Tuesday, June 19, 2012
Posted: 6 pm ET

Americans lost nearly two decades' worth of accumulated wealth between 2007 and 2010, according to a survey by the Federal Reserve. The median American family's net worth dropped to $77,300 in 2010, from $126,400 in 2007.

The collapse of the housing market is responsible for some of the decline in wealth, but not all of it. The free-falling stock market contributed to a large degree.

While most middle-class Americans have the bulk of their net worth tied up in a house, if housing is stripped out of the data, median household worth still fell by 25 percent between 2005 and 2010, according to the results of a CNNMoney analysis.

The ongoing slump in the economy that resulted in lost jobs and reduced wages meant that Americans were forced to dip into savings and retirement funds. Median income fell 8 percent between 2007 and 2010, to $45,800. Owning a home became a burden for some and retirement a pipe dream.  The good news from the recession is that Americans reduced their credit card debt -- nearly a quarter currently have no debt at all.

Although the recession took its toll on all levels of wealth, the middle class suffered the most. High-net-worth households fared better because they held a diversified investment portfolio that protected them from steep losses. The stock market has also recovered faster than the housing market, regaining, for the most part, its losses.

Although the economy is showing signs of stabilizing, it will be a long climb back for those who were deep in debt or kept all their wealth tied up in a home that sank in value. Going forward, lessons from the wealthy include living below your income level, avoiding debt as much as possible and developing a diversified portfolio of investments that can provide both growth and stability.

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1 Comment
June 20, 2012 at 8:36 am

Yes, we already read this recently elsewhere.