Investing q&a

During a recent quarterly market review call, we received the following question from a young man at the University of Texas:

How much net worth separates the wealthy from the merely well off?

It was a great question, albeit one that’s highly subjective.

I think of somebody wealthy as having enough assets put away and enough permanent income to provide ample cash flow and inflation protection to cover their living expenses and taxes. This income could come from Social Security, pensions, or maybe rental income, but the key is that they have enough assets to get them through the rest of their life.

This all boils down to understanding how much money you need.

For example, at Rebalance, we have clients—a husband and wife—who live near a beach in South Carolina. Their home is paid for, and they only spend about $80,000 per year. Between their Social Security income and just over a million dollars in investments, they have all of their expenses covered. They can wake up every morning and never really think about money.

In contrast, we have other clients who spend $400,000 a year. These folks may need $10 million in savings to produce enough cash flow to support the lifestyle to which they are accustomed.

Both set of clients are wealthy, in my opinion.

So it really has less to do with the amount you have, and more about how your assets can work for you to produce enough to cover your monthly expenses.

If those two things line up, you’ll be able wake up every morning and do whatever you want, without feeling beholden to a job or something that requires your effort to produce an income.

That’s my definition of wealth.


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