Personal Asset Growth in the US

I've always been interested in comparing different growth rates of different types of financial assets for individuals. This also turned out to be a good opportunity to learn some python bokeh html plotting! You can find all the code for this here

We consider 3 assets: income, housing prices, and the S&P 500 as a major stock index. I obtained the median individual income and median household sale price for the past 50 or so years from the St. Louis Federal Reserve (with no adjustment for inflation). Historical S&P 500 index prices were obtained from Yahoo Finance. Because we're interested in the relative growth of these assets over time, I plotted the normalized growth of these assets over time from 1975 to 2018.

The above graph seems to suggest that we should just put as much possible dispensible income into the S&P 500 and earn fantastic returns. Now, I arbitrarily normalized growth relative to 1975. But what if you bought stocks at the worst time possible? Would they still have such great performance? Below, I plotted the normalized growth of these assets at 2000 and 2008, when the worst bubbles of this century occured (you can see their astounding growth and subsequent crash in the above figure as well).

Bokeh software sidenote: I normalize the time-series based on a pre-chosen starting date. It would be cool if I could use the zoom and scroll features on Bokeh's interactive html plots and the graph would automatically normalize the time-series based on wherever the starting date happened to be on the graph. This issue is similarly described in this git issue. If anyone knows how to do this, feel free to reach out or push a git issue to my repo here.

Even if you invested right at the peak of a bubble, your stock growth would still be fairly strong relative to housing and income today. It also becomes more clear on these shorter-term graphs the ranking of asset growth: S&P > housing > income. Indeed, outside of these two years right before the crash of a great bubble, stocks always significantly outperform housing and income growth.

Of course, this is a greatly simplified analysis. These assets have very different financial structures and associated market barriers e.g. taxing, down payment on mortgages, differing industries salary growth, etc. But this analysis seems to correlate Thomas Piketty's thesis, that income inequality occurs when capital asset growth outpaces that of income growth; clearly, capital assets (housing prices and stocks) are outpacing the growth of income and clearly income inequality is rising in the US. In any case, the main personal takeaway for me is that it is always, bar a few unlucky moments in history, to invest in the S&P 500 index as a long-terms savings method (though of course, you should always diversify your portfolio and take advantage of many tax-deductible savings methods e.g. Roth IRA).

"Everyone to whom much was given, of him much will be required, and from him to whom they entrusted much, they will demand the more."
Luke 12:48b