Invest in Assets That Benefit from Economic Growth
Preceding the Iran conflict and the accompanying global energy supply disruption, some underlying economic challenges were percolating and gaining attention from policymakers and investors alike.
When the war began, however, investors justifiably turned their focus to developments in the Middle East, but while the shift in focus may have put other concerns on the back burner, it certainly didn’t cause the issues to go away. At the top of the list of American economic concerns was the topic of the “K” shaped economy being experienced in the U.S.
Understanding the K-Shaped Economy
This somewhat cryptic term refers to the trend where different segments of the population, acting within the same economy, experience vastly different financial outcomes during the same period of time. The “K” is used to describe the divergence between the top arm of the K, which refers to the affluent, the wealthy and typically older more established households, and the bottom arm of the K, which refers to lower income, less affluent and often younger households.
The concerns about the K-shaped economy were based on observations the upper arm was experiencing growing income, increasing asset values and rising affluence, while the lower arm of the K was experiencing stagnating wages and higher costs due to inflation, leading to rising consumer debt levels, difficulty affording basic needs and even the inability to initiate household formation, which is econ-speak for getting married, having babies and buying a house to raise them in. Often referred to the “American dream.”
While some of this inclination has always been true, the propagators of the K-shaped economy theory postulate the trend as leading to expanding levels of inequality among various segments of the population, which, in the view of some economists, was reaching a level alarming enough to present structural risks to the overall economy and even the societal fabric of the nation as well.
Is the K-Shaped Economy Real?
Is this K-shaped economy real? Some of the data does seem to support it. Tying into last week’s column on currency debasement, according to research from Barclays as of March 2026, general food prices are up 27% over the last five years. Electricity and gas are up 36-37%. Shelter costs are up 28%. During this same period, real wages for income earners in the lower quartile of the earnings scale have only increased about 14%. These kinds of numbers can definitely make it difficult to balance the household budget at the end of the month.
What about the upper-income-level folks? Well, according to the same research, as it turns out, income growth over the same time period in the top quartile of income earners is also up around 15%. So maybe the risk associated with the K-shaped economy theory was overrated after all, and like any economic debate, there are economists who dismiss this theory as well.
But this is when academic economics diverges from real world financial planning. Sure, income levels at both ends of the earnings spectrum may have experienced similar percentage increases, but top quartile earners realized their increase on earnings above $100,000 a year, and the bottom quartile earners experienced their increase on income in the range of $35,000 a year. So, if food costs are up 27% and a typical household of four spends $1,000 a month on food, the increase in food costs alone eats up most of the wage increases for lower-income households, and only a fraction of the earning increases for higher-income households. This bad math only compounds when energy and housing are thrown into the equation.
The True Great Inequalizer
Then there is the true great “inequalizer.” The top quartile households also own about 70% of the assets in the U.S., concentrated primarily in stocks and housing. With stocks up about 80% over the past five years, and home prices increasing in value about 55%, much of the cost pressures experienced by higher income households “felt” offset by growing total wealth in the form of increasing household net worth over the same period.
Do these trends present a material risk to the overall economy and potentially the financial markets? I candidly don’t think so. While these trends may be a bit more pronounced in the current inflationary environment, the facets underlying this reality have always existed in every economic system.
A Path Forward: Invest in Assets
While the political rhetoric addressing the K-shaped economy may pretend there is some sort of government policy solution to this issue, we all know there isn’t. Instead, the K-shaped economy is likely to be mitigated (I didn’t say solved) through a combination of economic growth, innovation and personal financial decision making. In my opinion, the key to this mitigation is in the investment and ownership of assets.
Asset values have historically served as the flip side of currency debasement. As dollars become less valuable, assets priced in dollars tend to become worth more dollars. So, if there is a policy solution to the K-shaped economy, it must involve getting more households in the U.S. invested in the assets benefiting from overall economic growth. Policies like Trump accounts and expanded retirement plan contribution limits can help tremendously in this regard, if people can choose and find a way to harness them.
Building wealth in America takes time, and as always, those who start taking steps to build wealth early, harnessing the power of compound growth, are ultimately able to navigate issues like the K-shaped economy and inflation over time.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
