American Salary is Shrinking and Why You Should Invest in Stocks

Americans' personal income has been diminishing since the late 1980s, according to a study by Wells Fargo. John Silvia and Sarah Watt House, both economists at Wells Fargo, said that wages and salary of the average American fell from 59% of personal income in 1980 to a mere 51%.

Silvia and House noted, "Since 1980, direct labor income has become a smaller share of personal income, while income from transfers has risen. This mix may help to stabilize consumption but also reflects altered incentives to work."

There are three reasons why Americans are getting less money from their jobs, according to Silvia and House.

The first is aging baby boomers and longer life expectancy amongst Americans. The duo said, "[A] growing share of the population is drawing social security and Medicare, which is reflected in the rising share of income derived from transfers. In addition, with a larger population of retirees, more Americans are likely cashing in on retirement savings and obtaining personal income on assets, although the low interest rate environment since the financial crisis has diminished the return on those assets."

The growing eligibility and use of social insurance programs also contribute to the falling personal income, the authors said. According to Silvia and House, these transfer payments, including disability insurance and food stamps have a direct effect on Americans.

"Although having fallen from a recent peak of 19+ percent in the aftermath of the Great Recession, the share of income derived from transfers has steadily risen over the past two decades,” they mentioned.

The third factor is rising rental income. The pair commented, "rental income has risen noticeably since 2000, as more households look to allocate capital to rental property to supplement labor income."

Silvia and House noted that unfavorable labor market dynamics are also a factor. "We suspect this is a product of both demand and supply forces," they wrote. "On the demand side, firms have been cautious to hire given the modest and uncertain gains in final demand. In addition, as global markets continue to expand, firms are increasing their hiring abroad to serve markets there. On the supply side, the availability of transfer payments and mandated benefits have increased the reservation wage for many workers and lowered the cost of additional leisure. Moreover, an excess supply of labor relative to demand has kept wage growth muted. restraining labor income even as hiring has improved."

According to the two, labor also plays a crucial role in the average personal income of every American.

Given this scenario of shrinking personal income, you may want to diversify your finances in order to cope with the rising cost of living. One way of achieving this is by improving your portfolio through stock investing.

But stock investing could be very taxing as stock prices fluctuate on a daily basis. The stock market could display manic-depressive tendencies each day. Aside from the inherent risks of a volatile market, investors are also plagued by fear, greed, hope and ignorance when it comes to trading in stocks.

The good news is, the stock market is not that topsy-turvy and you can actually rise above the competition. When trading stocks, the most important thing to remember is to not buy stocks but companies, especially if you want to be a long-term investor.

A company is like a brand, and like a brand, a company makes a stock valuable. You have to study the balance sheet of the companies you are interested in investing in and learn how much profit they are making.

The ultimate goal in buying stocks or investing is to generate a return on your investment. The amount of income you will generate from your investments can be expressed via the return on equity ratio. Mostly, companies generate income with the volume of assets they allocate. The more earning assets a company buys using shareholder money, the better the return on equity will be.

To fully understand the ABCs of investing, it is wise to first invest in education. Learning is power. And applying knowledge in investing is always a wise decision. One of the companies that offers online investment education is InvestView (OTCQB: INVU).

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