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‘The Rich’ Are an Ever-Changing Group… Get Yours!
| September 28, 2011 | Posted by Roshawn Watson under Uncategorized |
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By: Roshawn Watson
Death is not the greatest loss in life. The greatest loss is what dies inside us while we live (Norman Cousins)
Most of us rejoice when someone hits the ball out of the park and the cover off of the ball. We know that extreme success, financial and otherwise, requires effort on our parts, sometimes considerable effort. While some appear to have the golden touch (i.e., Steve Jobs), a closer look often reveals their many struggles and costly setbacks too. Thus, just because one is rich today does not guarantee that he or she will be rich next year. The opposite is also true, or is it? There are divergent views on the longevity of wealth and whether inherited wealth (static) will eclipse newly-earned wealth (dynamic). Lets delve into the data..
Who are the “Rich” Really?
There is much confusion over what qualifies for “rich.” It largely about perspective. For example, one could effectively make the case that the person on welfare in a rich country is far better off than many others in poverty-stricken lands. Thus, for the sake of this post (and this site in general), I submit to you that when I refer to “the rich,” I do not mean your garden variety millionaires. Two-thirds of millionaires in America have a net worth of less than less than $2.5 million. Although that’s enough for many to be comfortable, from a technical (i.e., balance sheet) perspective, this level of wealth would make one affluent rather than rich. To qualify for rich, add a 0 to the aforementioned figure (or 3).
The only reason I stress the distinction is because such a small fraction (i.e. around 6%) of American millionaires have a net worth of $10 million or more. In other words, while millionaires are relatively “common,” it’s extremely rare to actually be rich because it is difficult for most to amass such a high concentration of wealth. The top 1% of earners make about 20% of the income in America, and the top 5% received about 40% of the recent gains in wealth.
Are The Rich Stationary or Dynamic?
Now, that we have defined who are the rich, there are some recent data that are relevant. According to the IRS, the number of filers with incomes of $1 million or more has declined by 39% between 2007 and 2009. In 2009, there were 237,000 million-plus earners, down from 390,000 in 2007. Thus, this decrease may indicate that the income affluent are shrinking in numbers due to: a) economic and market challenges and/or b) restructuring of their businesses or investments (i.e., utilizing loss-carry forwards, taking less income in the form of cash, reinvesting in their businesses, etc.). Interestingly, balance sheet affluent (someone with a high net worth) saw a completely different phenomena. According to Merill Lynch and Capgemini report, not only does the U.S. now has a record number of millionaires, but the number of people worth $30 million or more also increased substantially.Although the income versus net worth data may appear to contradict each other, what likely happened is that those who sold in the panic market drop at the end of 2008 had lots of capital loss carry forwards to offset gains in 2009. Thus, investors made plenty of money, but their reported incomes simply didn’t reflect it all.
More importantly, both income and net worth data suggest that “the rich” change constantly. However, the IRS and Merill Lynch and Capgemmi aren’t the only organizations tracking the rich: what about the Forbes 400 list? About 70% of the new Forbes 400 (400 Richest Americans) are purported to be self-made, which is encouraging, yet half of the top 10 inherited some or all of their wealth. If you combine the net worth the Walton family ($87 billion total), as other families on the list are combined, then 60% of the families have inherited their wealth. This begs the questions as to whether it is possible that preserved family wealth may eclipse newly-created wealth?
The implications of this scenario would be substantial. Already, hopelessness has crept into Americans according to a recent CNBC report. A whopping 79% of Americans indicated that it is unlikely they will even have $1 million or more in assets in over the next 10 years. Moreover, 61% said it is “extremely” or “very difficult” to become a millionaire in the U.S. today. Now of course, I don’t highlight this data to be negative but rather to point out that if the prevailing attitude is one of despair (i.e., the only people who get ahead are those who hit the genetic lottery), then how likely is someone with this mindset to take the steps necessary attempt the impossible.
Closing Thoughts
In aggregate, while it is possible to get rich in today’s economy if you desire, there are certainly some distinct challenges in the present climate (i.e., over a 20 year period [1987-2007], there was strong economic growth, a 20-year-bull market, and huge technological changes and investments). Perhaps the biggest danger though is not the external obstacles one must over come but rather that internal drive may diminish, as dreams are discarded, in favor of reality.
Don’t give up on your dream though. It may just be the most valuable thing that you possess.
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.
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