When you examine the typical asset breakdown of the wealthiest Americans, one fact stands out: Overwhelmingly, categories such as stocks and business equity make up the greater part of net worth, some 40% to almost 80%. By contrast, for the less affluent middle class, the home is the largest single asset, amounting to nearly two-thirds of net worth. Throughout most of the '80s and '90s, the wealthy have become even wealthier in large part because they own the biggest percentage of equities. Indeed, recent studies have found that the wealthiest 10% of households own nearly 90% of the nation's financial assets.

Granted, stocks seem a lot more risky these days. At the end of 2006, the market has erased some $4.5 trillion in value since early 2000. And many forecasters have predicted that after the double-digit gains of the '90s, returns from stocks will be lower over the next few years--possibly less than their 10% historical annual average. Not surprisingly, fewer investors have been eager to pile into equities. In 2000, investors poured a record $300 billion into stock mutual funds; a year later, that flow dropped to just $32 billion.

Still, economic history convincingly demonstrates that stocks have been the best way to build wealth over the long run. For example, a study using economic data from 1962 to 1995--an era that spans both a punishing bear market and a period of high inflation—shows that if you increased the middle class' likelihood of owning stock and the amount of stock they held by 15%, the group would have enjoyed aggregate wealth gains of 25% to 40%. Over the long term, keeping more of your portfolio in stocks has been the best way to enhance net worth. And there's no reason to think that trend won't continue. Even in the boom and bust of the dotcom era of 1998 to 2001, some $280 billion in wealth was created by mutual funds.