As part of this week's series of articles on household income and wealth in the United States, we are taking an in-depth look at the richest 0.9% of Americans, how they got that way given that 90%+ didn't inherit any of their wealth, and how you can use those same traits to increase your own net worth.  Put in an easy step-by-step format, you'll definitely want to print each step and read it on your lunch break or the next chance you have to take a moment for yourself.

Imagine you own a stock that hasn't increased in value in several years; it's a terrible investment, right?  The reality is not so simple.  Research has shown that more than 99% of real, inflation-adjusted wealth is the result of reinvested dividends in boring, profitable companies.  That means that when you look at a stock chart, you are literally seeing a meaningless squiggly line on a piece of graph paper.  The result is that new investors (and sometimes even experienced investors) draw wrong conclusions and bypass great potential investments because they are looking at the wrong data.  To understand why this is the case, and more importantly why it should matter to you, read Don't Join the Capital Gains Cult - Why You Should Focus on Dividends and Total Return - Not Capital Gains.

I decided to expand on yesterday's article about class in the United States and go further into the breakdown of household income.  We're going to look at the demographic drivers that make some households wealthier than others.  We'll look at the top 5% of earners in detail (the richest 5% of Americans, for instance, consists of married couples, both of whom worked, and earned a combined $157,176.  They own their own home and are overwhelmingly Caucasian).

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Have you ever wondered what is considered wealthy? How about where you and your family fall in total household income? Today, we're going to be looking at the research of Leonard Beeghley and examining class levels in the United States. By finding out where you are in the spectrum of household income and class, you can better determine if your inability to invest really is due to a lack of income or whether you don't have a handle on your finances when compared to your neighbors.  You'll also learn the purpose of investing, and the three most common ways to make money.

Go ahead - you know you want to find out where you fall in the economic spectrum compared to your neighbors, friends, and family.

As part of the $44 billion acquisition of Burlington Northern Santa Fe, Berkshire Hathaway announced that it is splitting its Class B shares 50-1, making the $3,200 or $3,300 B shares a much more affordable $65.30 per share.  The Class A shares will retain their $100,000+ price tag.  If you don't understand how stock splits work, you can read What are Stock Splits?

I've been able to teach you a lot about how investing works thanks to the lessons Buffett teaches at the annual shareholder meeting.  Take a few moments to read through some of this content to see how useful it can be for new investors:

• 10 Lessons from the Berkshire Hathaway Shareholder Meeting of 2007
• 8 Lessons from the Berkshire Hathaway Shareholder Meeting of 2008
• Warren Buffett Biography
• How to Use the Berkshire Hathaway Model in Your Own Life

(Disclosure: As long-term readers know, I have a big investment in Berkshire Hathaway both personally and through my companies.)

A new investor wrote to ask me a great question: Why, with all of the money the government is printing, haven't we seen inflation? I thought I would share the answer with you to help you understand what's going on with your pocket book right now.

The Short Answer: The amount of money the government has printed has not yet exceeded the money that was created by banks during periods of record low interest rates.

In other words, when you deposit money into a bank, they are allowed to keep only a fraction of that on reserve. They can lend far more money out than the amount you deposit. Here's a gross oversimplification: If reserve requirements are low (set by the Federal Reserve), and you deposit $100,000 into your bank, the bank may only need to keep $10,000 on hand. They can then lend $90,000 out to someone, who goes and deposits it another bank. This bank can then use the money to lend out $89,000. This cycle repeats until your original $100,000 is much, much more "money" in the system. In our case alone, your deposit plus two business loans resulted in $279,000!

The government, economists, and financiers track the amount of money in the system by the type. These are often called M1, M2, or M3 money supplies. They way, they can see how much of the "money" in a nation comes from paper dollars, how much comes from bank credit, etc.

So much "money" was created when interest rates fell and consumers borrowed record amounts that when the banks shut off the lending to try and rebuild their balance sheet, that money was sucked out of the economy. Had the Federal Reserve not printed money, we would have gone into a Great Depression deflation - your house and assets would have lost value but your mortgage would have stayed the same. In other words, if you had any debt at all, you would have been totally and completely screwed.

The government turned on the printing presses to attempt to replace the bank created money, with the hope that they could take it out of the system over the next 5 to 10 years slowly, a little at a time.

This was a perfectly rational and wise response. The problem is that many people wonder whether or not Congress can control its spending. The moment the printed money starts to exceed our old money supply (printed money + bank created money), inflation begins. With the current projected deficit of $9+ trillion over the coming 10 years, that would happen and that is why people said inflation may be coming.

If Congress stops spending 1-2 years from now, inflation won't happen despite the money we've printed because of the factors I've already described. If, however, Congress continues to spend money, inflation could destroy the value of the dollar. As I've posted earlier and elsewhere, if you know how to take advantage of this situation, that can be good for you, just as it will be for companies such as Coca-Cola, General Electric, or Johnson & Johnson, which make a lot of their money overseas in non-dollar countries.

Put simply, the problem isn't the money the government has printed over the past two years. It's the money that most investors think the government is going to print over the coming ten years that is the problem. As you can see from the chart below, actual paper money is a tiny, tiny percentage of the total "money" a nation has created at any given time. As a result of credit getting cut off, the government couldn't print money fast enough to replace the M2 and M3 money supplies (this chart shows you up until 2005, how M2 and M3 were getting to be a larger and larger percentage of the total "money").

It's hard to believe, but it's been 80 years ago today that the Great Depression began, marking the worst economic down turn in more than 600 years.  The stock market slide that began, and didn't end until the bottom of the market during 1932-1933, wiped out the savings of millions of Americans and was exasperated by the fact that you could leverage stock positions 10-1 on margin in the days before the Federal Reserve kept margin at 2-1 or 3-1.  Although we've currently been in a recession that marks the worst period since the depression, it still pales in comparison to the havoc wrecked on our parents, grandparents, and great-grandparents generation.

The truth is that despite the fall in asset prices, those who paid cash for their purchases instead of borrowed money, spent less than they make, and continued to fully fund their 401(k) and Roth IRA, have emerged unscathed as long as they are at least ten years away from retirement.  The benefits of dollar cost averaging mean that investments made since the March low have nearly doubled.  With dividends reinvested, this helped lower your cost basis even further.  Of course, most critics of long-term investing ignore the fact that dividends aren't included in any charts, failing to realize the important research done by Dr. Jeremy Siegel that shows virtually 90% to 100% of real, after-inflation gains come from the power of reinvested dividends.

As you learned in Is It Better or Worse to Start Investing During a Recession, the market may go up, the market may go down, but there are always intelligent things to do.

"Many analysts expect the economy returned to growth in the July-September quarter, expanding at a pace of 3.3 percent. If they are right, it would end the streak of four straight quarters of contraction, the first time that's happened on records dating to 1947." - Associated Press

Job losses are still mounting, but that is to be expected because jobs have been, and will always remain, a lagging indicator (businesses don't want to hire until they are certain everything has stabilized).  A year from now, short of some unforeseen disaster, debt levels should be much lower, real estate prices much firmer, and investors much calmer.  Even though most of the gain was from the Cash for Clunkers program (the estimate is that without it, growth would have been an anemic 0.8% or less), the fact that the economy still would have grown, even in tiny terms, is a huge improvement.

If you've already read the new beginner's guide to investing in Series EE savings bonds that I published a few days ago, you may be wondering how, exactly, you actually go about investing in Series EE savings bonds.  The next installment in the series for new investors answers that question.  In How Do I Buy Series EE Savings Bonds?, I explain four ways you can begin investing today in these traditional, low-cost fixed income bonds.

You may also be interested in these other Series EE savings bonds resources for new investors:

1.) How Are Series EE Savings Bonds Interest Rates Determined?
If you've ever invested in savings bonds, or are considering making your first investment, you may wonder how the Government determines the interest rate you will be paid on your bonds.  The process isn't that complicated but you should know how it's done in order to determine if you are receiving a fair rate of return.

2.) Series EE Savings Bonds Photo Gallery
Have you ever wanted to know what each of the Series EE savings bonds look like?  This step by step photo gallery provides a high resolution of each bond denomination as well as a brief history of the historical figure that is honored.

3.) Tax Advantages of Investing in Series EE Savings Bonds
Did you know that you can pay for your education expenses and avoid paying income taxes on your interest income if you structure your Series EE bond transactions correctly?  Learn more about the tax advantages offered by savings bonds in this feature.

4.) What are Patriot Bonds and How Are They Different from Series EE Savings Bonds?
Patriot Bonds were issued by the United States following the attack on September 11th, 2001.  What is the difference between a Patriot Bond and a regular Series EE savings bond?  If you've ever wanted to know, take a moment to find out the answer.

One of the most popular and affordable options for new investors wanting to put money into bonds is the Series EE Savings Bond issued by the United States Treasury.  This special puts together virtually everything you need to know about investing in Series EE savings bonds for beginners including:

• The difference between physical paper certificates and the new electronic Series EE savings bond program offered by the government that lets you invest any amount you want to the penny (e.g., $501.72)!
• How you actually make money investing in Series EE savings bonds
• How much interest your Series EE savings bonds will pay
• The penalties for cashing out of Series EE savings bonds before the maturity date
• Eligibility requirements for owning Series EE savings bonds

I'll be adding much more content on Series EE savings bonds this week including special tax techniques you can use to pay for your education costs and much more.