Are You Semi Aflluent?

Some developments are more unnerving than others.

Consider, for instance, the idea of being among the “semi-affluent.” Do you think you are? Or is it just our neighbors? In my view, you are either affluent or you’re not. Like virginity, it’s not a “semi” kind of thing.

In fact, semi-affluence isn’t something most people need to worry about. According to Mark Hurley, researcher and founder of Undiscovered Managers in Dallas, you are semi-affluent if you have a net worth of $1 million to $10 million. While few qualify, the definition is still more proof, if you had any doubts, that a million dollars isn’t what it used to be.

Affluence, and by that I mean full affluence as opposed to that chintzy semi stuff— starts with having more than $10 million.

As with the devaluation of currencies, wealth is becoming less valuable as more and more people have it. According to The Millionaire Next Door and other sources, the number of millionaire households grew from 800,000 in 1989 to 3.5 million in 1995. The figure is expected to reach 5.6 million by 2005. That calculates to a 13 percent annual compound growth rate.

If you don’t think you’ll be in this group, don’t worry. You’ll still have lots of company. According to the Census Bureau, our population is about 272 million today and may reach 286 million by 2005, which means that only 2 percent of the population will be semi-affluent.

To find out where everyone else fits in, we need only check the October 11 issue of Forbes magazine, the one devoted to the annual list of the 400 richest Americans. Here we learn that you aren’t “rich” until your annual income is over $1 million and/or your net worth is over $10 million. In other words, if you are one of those benighted souls earning, say, $900,000 a year with a dinky net worth of $5 million, you’re still just “Upper-middle” class. Worse, the price of entry into the 400 is suffering hyperinflation. A mere $500 million last year, it rose to $625 million this year, a 25 percent increase. Surely, this is another sign that we need to worry about asset inflation as well as the stuff usually measured by the Consumer Price Index. (See table below)

The New Map of Money and Position

Source: Forbes, October 11, 1999

At the risk of sounding like Yogi Berra, the Forbes 400 issue also makes something else very clear: If you want to live rich, you’ll need a lot of money.

While the Forbes “Cost of Living Extremely Well Index” rose 4 percent between 1998 and 1999, my own calculations based on comparable prices in 1976 (Pre-history in Internet time) shows that the cost of luxury living has been rising at about twice the cost of ordinary living.

While the consumer price index has risen at a compound annual rate of 4.8 percent from 1976 through 1998, some luxury items suffered stunning price increases. Here are a few examples:

• A pair of John Lobb (London) custom made shoes, men’s wing tip, rose from $202 to $2,540, a compound rate of 11.6 percent.
• Dinner at La Tour d’Argent in Paris rose from $34 to $229, an increase of 8.6 percent, compounded annually. Thankfully, it includes wine and tip, but for one.
• A Hatteras 65 motor yacht rose from $231,097 to $2,176,100, an annual increase of 10.2 percent. Sailing yachts, as measured by a Swan 68, were more reasonable, rising from $384,300 to $2,300,000 or 8.1 percent annually.

Then again, if you had simply denied yourself the purchase of the $117,000 Rolls Royce Silver Seraph that would have made you look rich in 1976, the same money, invested in large common stocks, would have grown to $3,771,495 by the end of 1998.

And that, friend, would have put you firmly in the ranks of the “semi-affluent.”

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo: Pexels-Mat Brown

(c) A. M. Universal, 1999