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San Clemente Journal

Wealth in America

May 05, 2006 10:56AM ● By Shelly Cormack

by Michael Vandenburg, CFP®

What does it mean to be wealthy in America today? I’m not talking about Bill Gates who topped the Forbes 400 list again with a net worth of roughly $51,000,000,000 (that’s nine zeros or 51 Billion for those who lost count). I’m not even talking about the bottom of the Forbes list on which you would need about $900,000,000 just to be noticed. I’m talking about an average family working their way up the ladder from middle class, to upper class, to complete financial independence. 
The starting point for most studies on wealth is 1 Million in investable assets (excluding personal residence). There are actually three different categories of wealth; the mass affluent, wealthy and ultra wealthy. The mass affluent is typically families with a net worth of between 1 and 5 Million. The wealthy have a net worth of between 5 and 10 Million. If you’re net worth is 10 million or more, you are in the top bracket of ultra wealthy families in America. 
There are about 2 million households in the mass affluent category. These are your typical millionaire next door families that you might not expect to have as much as they do. In fact, 72% of American families earning $125,000 or more clip supermarket coupons. The average affluent family earns about $200,000 per year, although if you include wealthy and ultra wealthy families that figure jumps up to almost $400,000. So what does it mean to be wealthy in Orange County? Well if you can afford to live here and still manage to save for retirement, chances are your doing OK. If all of your wealth is not tied up in your home so you’ll have to move to Kansas to retire, you’re also doing OK. If you fit into one of the three categories above, relax, you’re going to make it. You’ve already proven that you know how to make money and save money. You just need to make sure you have the proper plan to grow your wealth to the next level. 
In today’s economy it is sometimes difficult to distinguish between the mass affluent and those that are borrowing heavily on their homes to create an image of wealth and success. As America drowns in debt the savings rate has actually collapsed to zero. To put this into perspective even in the hyper-inflated ‘80s the US savings rate was about 11%. There are still plenty of people saving at those rates and higher, but the effect is being offset by those that earn a decent income but spend everything they make and then some. The gap between the haves and the have-nots is widening and the wealth effect of real estate values is making this gap even wider. 
So, what are the wealthiest Americans doing that may help those looking to move up the ladder? For starters, the highest wage earners are either self-employed or business owners. These are the risk takers who exchange their steady corporate paycheck for independence and the chance to make their own destiny. When it comes to investments, the wealthy also have some advantages. One interesting figure is that the ultra wealthy have been investing more in traditional asset classes and mutual funds and pulling money away from hedge funds and other alternative investments. According to the Spectrum Group, ultra wealthy investors have doubled their allocations to mutual funds in the last few years, and during the same period they have pulled money from individual stocks, managed accounts, hedge funds, and other alternatives. This doesn’t come as much of a surprise with the overabundance of hedge funds with poor performance and high fees. Another trait of the wealthy and ultra wealthy is patience. They have been through good and bad markets and they are more likely to stay the course and invest for long term performance. The wealthy and ultra wealthy also understand the importance of planning. They have a better grasp on what their net worth is and plan for its growth. One recent study by the Financial Planning Association and the Consumer Federation of America showed that less than half of American adults could define what personal net worth was. Even after it was explained to them, only 48 percent could figure out their own personal net worth. 
So where do you fit in when compared with the wealthiest Americans? It doesn’t really matter unless one of your goals in life includes accumulating more wealth than others. Some people can live very comfortable on very little money while others require a seemingly endless supply of funds just to get by. The best way to figure out your wealth requirements is to base it on your own lifestyle and needs and not by comparing your wealth to others. Besides, as long as we have Donald Trump around there will always be someone in our face to show us how little we have compared to them. b 

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