Does your net worth percentile influence your financial decisions...? (Calculator attached)

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delamer
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by delamer »

snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
What is a peer in this context?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
snowday2022
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by snowday2022 »

delamer wrote: Tue Apr 02, 2024 5:53 pm
snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
What is a peer in this context?
It is complex and variable. Look up the Easterlin Paradox. There is certainly a range to which people are susceptible to this and perhaps BHs do this less.
BAM55
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by BAM55 »

1) Asset Allocation ? No
2) Decision on when to retire ? Yes
3) Decision on how much to spend ? Yes
4) Something else about your financial life ? The chart says we are in the 97th percentile. Does that affect me in any way? Yes. I'm more generous than I used to be. I don't "worry" about money. When our net worth goes up, I feel like I can spend more - even though that usually doesn't happen, which is how we got to where we are today.

I heard someone once say, "When I started making a decent amount of money, I really wanted to lease that Porsche. When I then had enough money to pay cash for any Porsche I wanted, it was less appealing". I now understand that comment.
thedaybeforetoday
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by thedaybeforetoday »

I know our rough net worth number, but to me, it has no utility.
Combine this with not really giving much consideration to how our lifestyle relates to others lifestyles and well....
Let's just say the Joneses don't impact my decision making.
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
Parkinglotracer
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Parkinglotracer »

CraigTester wrote: Mon Apr 01, 2024 2:59 pm Does your net worth percentile influence your

1) Asset Allocation ?
2) Decision on when to retire ?
3) Decision on how much to spend ?
4) Something else about your financial life ?

There always seems to be a "Are you rich?" article percolating in the news, what do people do with this information?

Net Worth Percentile Calculator for the United States link below:

https://dqydj.com/net-worth-percentile-calculator/
My net worth percentage is just a statistic that means nothing. My net worth and willingness to live beneath our means is what allowed us to buy a second home at age 47, take a three year sabbatical at age 50; retire at age 60, and make long term financial decisions for our family that will benefit us.

My concern with learning one is in the X% percentile is that will make one feel entitled to have certain things. I since I am in the top whatever I deserve a new car, I should have a housekeeper, I can afford to stay at the ritz. And Is said here on the forum - comparison is the theft of joy.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Parkinglotracer »

CraigTester wrote: Mon Apr 01, 2024 2:59 pm Does your net worth percentile influence your

1) Asset Allocation ?
2) Decision on when to retire ?
3) Decision on how much to spend ?
4) Something else about your financial life ?

There always seems to be a "Are you rich?" article percolating in the news, what do people do with this information?

Net Worth Percentile Calculator for the United States link below:

https://dqydj.com/net-worth-percentile-calculator/
My net worth percentage is just a statistic that means nothing. Our net worth and willingness to live beneath our means is what allowed us to buy a second home at age 47, take a three year sabbatical at age 50; retire at age 60, and make long term financial decisions for our family that will benefit us.

My concern with learning one is in the X% percentile is that will make one feel entitled to have certain things. I since I am in the top whatever I deserve a new car, I should have a housekeeper, I can afford to stay at the ritz. And Is said here on the forum - comparison is the theft of joy.
JPM
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by JPM »

My friends are the same friends I've had for 40-60 years by and large. Most are retired or semi-retired doctors, teachers, or engineers. Among those surviving, we have all gotten richer over the decades, some very much so, some less so. Apart from the fact that we almost all tip better than we did 40 years ago, changes in wealth seem to have not mattered a lot in terms of the warmth of our friendships. Some guys have pricey toys of various kinds but they do not excite any detectable envy in those that cannot afford them or choose not to buy them. Some got richer by bearing heavier burdens than the rest of us. No reason to envy that, more to admire in the burdens they bore than in the rewards thereof.
Tundrama
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Tundrama »

Nope, on all.

A fun example is happening as we speak. We have several million. Our new dentist has been a nightmare for the past two years. We live very remote so we are giving this office a good try and tolerating more than we should.

They keep telling us we owe $300 for a cleaning when we only use insurance that covers all cleanings. Their billing person is completely defunct at their job.

Point of my story, I’ll fight for wrongly being billed as much now as when I was in college eating ramen noodles and showering in PBR. In fact, maybe more so now as I realize you work your whole life to get It, and some are always attempting to take It.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by HMSVictory »

Percentile - absolutely not. Could care less what others are doing, and most people are utterly broke.

Overall net worth? Yes, for sure.

Net worth is the scorecard that lets me know how well I am converting my earned income into investment income and assets. Full stop.
Stay the course!
Greg in Idaho
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Greg in Idaho »

Given all the psychological torment that many face regarding when to retire, OMY syndrome, "is 2% withdrawal REALLY safe?!" ...I think these numbers can play a role helping people with a substantial portfolio get over the hump and pull the plug (I just wish my wife was one of them)...
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A440
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Re: Does your net worth percentile influence your financial decisions...?

Post by A440 »

Da5id wrote: Mon Apr 01, 2024 3:11 pm Nope, comparison is the thief of joy. Why would where I am relative to others impact *anything* I do or spend?
+1 to the Teddy Roosevelt quote. Agree with this 100%
I don't know what the future holds, but I know who holds my future.
GAAP
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by GAAP »

CraigTester wrote: Mon Apr 01, 2024 2:59 pm Does your net worth percentile influence your

1) Asset Allocation ?
2) Decision on when to retire ?
3) Decision on how much to spend ?
4) Something else about your financial life ?

There always seems to be a "Are you rich?" article percolating in the news, what do people do with this information?
1-4, no -- and I do nothing with the information.

That said, I do remember seeing some research that says home equity makes up a smaller amount of net worth as that net worth rises. For example, all of the mansion purchases by Jeff Bezos still sum up to a tiny percentage of his net worth.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee
one_speed
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by one_speed »

snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
Preach!

Money only exists at all in the relative sense.
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CraigTester
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

(Note: 85th percentile in 2023 = $2.1M ==> so it grew at over 7% CAGR vs 2.7% for CPI)

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
Last edited by CraigTester on Wed Apr 03, 2024 2:53 pm, edited 1 time in total.
delamer
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by delamer »

CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
Would you explain your conclusion that the above supports the claim that the CPI is not accurate?
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by tibbitts »

CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
There are so many flavors of CPI that nobody can keep track and none of them apply to me.

However maybe your point is that if you rely on your investments for income, you have to keep pace not just with CPI on an after-tax basis, but if other people (through wages, etc.) are beating CPI after-tex, then you have to keep pace with them to be (feel?) equally wealthy?
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CascadiaSoonish »

The correct Boglehead answer is clearly "no" but I'll be the contrarian. Having a rough sense of net worth vs. financial decisions at a certain percentile strikes me as a variant on SWR. Staying under whatever seems to be a common spending pattern for a given level of wealth is sort of like staying under 3.5% or 4% or whatever. Like the "Can I afford this car if I'm worth $X" variants that crop up here from time to time; the sliding scale of (say) vacation houses in different price ranges vs. net worth is the same relative calculation in a lot of ways.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

delamer wrote: Wed Apr 03, 2024 2:45 pm
CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
Would you explain your conclusion that the above supports the claim that the CPI is not accurate?
85th percentile in 2023 = $2.1M ==> so it grew at over 7% CAGR vs 2.7% for CPI...

So let's say you and a friend in 2013 each had a $1M and were both at the 85th percentile.

You invested in TIPS (pacing inflation) and he invested in a mixed portfolio that earned 7% CAGR (4.3% above inflation)

Despite pacing inflation as measured by CPI, your wealth ranking fell to the 78th percentile = $1,307,000.

Whereas your friend happily doubled his $1M, but was surprised to learn he was still "only" at the 85th wealth percentile.

Now, let's say you and your friend are competing to buy a house in 2023....

You have "lost" purchasing power relative to your friend despite pacing inflation as measured by CPI

As discussed above, wealth is ultimately a "relative" term...

And although you paced inflation (measured by CPI), you did not maintain the purchasing power of someone at the 85th percentile ....

Your friend got the house.... because he preserved his purchasing power as defined by the 85th wealth percentile, Not CPI.
delamer
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by delamer »

CraigTester wrote: Wed Apr 03, 2024 3:15 pm
delamer wrote: Wed Apr 03, 2024 2:45 pm
CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
Would you explain your conclusion that the above supports the claim that the CPI is not accurate?
85th percentile in 2023 = $2.1M ==> so it grew at over 7% CAGR vs 2.7% for CPI...

So let's say you and a friend in 2013 each had a $1M and were both at the 85th percentile.

You invested in TIPS (pacing inflation) and he invested in a mixed portfolio that earned 7% CAGR (4.3% above inflation)

Despite pacing inflation as measured by CPI, your wealth ranking fell to the 78th percentile = $1,307,000.

Whereas your friend happily doubled his $1M, but was surprised to learn he was still "only" at the 85th wealth percentile.

Now, let's say you and your friend are competing to buy a house in 2023....

You have "lost" purchasing power relative to your friend despite pacing inflation as measured by CPI

As discussed above, wealth is ultimately a "relative" term...

And although you paced inflation (measured by CPI), you did not maintain the purchasing power of someone at the 85th percentile ....

Your friend got the house.... because he preserved his purchasing power as defined by the 85th wealth percentile, Not CPI.
In your example, come 2023, each of my dollars still has the same purchasing power as each of my friend’s dollars.

My friend just has more dollars. But why does that mean he got the house? And how is the 85th percentile vs. 78th percentile difference relevant to the house purchase?

The CPI measures changes in the price of a fixed basket of goods/services over time. It is not in any way a measure of income.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
1moreyr
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by 1moreyr »

BrooklynInvest wrote: Tue Apr 02, 2024 11:48 am No.

For me there is one helpful use for this - I worry more than I should about money. Working on it. When I run the numbers it's an excellent reminder that I need to lighten the ... heck up.
This is how it helps me. It reminds me to enjoy the ride and remember (my) goal is not to die with the most but get the most out of my years left on the planet.

take a cruise, help my kids, give to charity.... what ever "get the most" means to me
MathWizard
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by MathWizard »

CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

(Note: 85th percentile in 2023 = $2.1M ==> so it grew at over 7% CAGR vs 2.7% for CPI)

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
I believe that a more likely explanation is that those who are above the 75th percentile have a large part of their wealth in things that appreciate,like stocks.

2013 was not far off from 2009 when stocks had dropped by around 50% . If I recall, I was getting about 12% per year in 2010-2013, so

The inflation adjusted S&P500 values on Jan 1 2014 vs Jan 1 2024
from
https://www.multpl.com/inflation-adjust ... le/by-year
are
2014: 2,417.64
2024: 4,834.23

so the S&P 500 is almost exactly 2x over those 10 years (roughly 7% CAGR) inflation adjusted.

Not all of one's net worth is in the S&P 500,so you wouldn't see the full 2x real growth.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by nisiprius »

snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
Well, cite some of that research so I can be sure that I am understanding exactly what it is saying or not saying, particularly what a "peer" is.

I already mentioned that I made a comparison. But I was comparing it to the median for people in my town, not "the whole United States."

Certainly, I make invidious comparisons whether that's good for me or not. But it is more things like visible standard of living compared to others on the same block. Yeah, I started to feel less good when I realized that within the last ten years, every house around mine had been resided, and ours still had ugly old siding. I do not believe "the only thing that matters" is the net worth percentile in the United States distribution. Certainly, I don't feel wealthy just because by having the median income in our high cost-of-living place, we are in a higher percentile than someone in a low cost-of-living place.

Furthermore, is it net worth the is "almost the only thing matters?" Or is it "status?" I felt somewhat dissatisfied that in my career, I didn't quite reach the highest position title for individual contributors at my workplace. Of course I know that rank was highly correlated with salary. But I was envious of so-and-so, not because of his salary, but because of his rank. On the other hand, I felt foolishly smug at having a cubicle adjacent to the row of windows, instead of one deeper inside the maze.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Vinny_in_NJ »

Short answer - nope! Little longer answer - knowing we can afford an extra $20 once in a while is a good feeling but we still spend the same.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Valuethinker »

JPM wrote: Wed Apr 03, 2024 7:12 am My friends are the same friends I've had for 40-60 years by and large. Most are retired or semi-retired doctors, teachers, or engineers. Among those surviving, we have all gotten richer over the decades, some very much so, some less so. Apart from the fact that we almost all tip better than we did 40 years ago, changes in wealth seem to have not mattered a lot in terms of the warmth of our friendships. Some guys have pricey toys of various kinds but they do not excite any detectable envy in those that cannot afford them or choose not to buy them. Some got richer by bearing heavier burdens than the rest of us. No reason to envy that, more to admire in the burdens they bore than in the rewards thereof.
You only get to live one life.

Some of my friends have done very well. But they were better than I was at some particular thing that was monetarily remunerative, or they were very focused.

One friend is a partner in a law firm and makes probably 7 figures. But their child is autistic, and has a full time carer even as an adult. It's really fortunate they can afford that (his wife is also a successful professional who works from home). It was a big thing when, for the first time in 20 years, they had a weekend away without that child. When they go on holiday, they go as a family and take the full time support person with them. I am glad they have the money to pay for all of this care. Should I envy them?

One of my siblings is very successful -- recently bought a 6 figure classic car. But it is a highly stressful role, they haven't had time to develop many hobbies or friends outside of work, they don't particularly like the city they have lived in for the last 30 years. They are in their 60s now, and looking at their physical condition (at least 80lbs overweight etc) I wonder how long are they going to last? And if they do retire, what will they do with their spare time?

I had a dear friend in high school and early university who has disappeared. I suspect their work has taken them into areas where an online presence is not advisable. I have no way of contacting them, which makes me sad. I am sure they are very successful.

Mostly I hope for my friends' health and continued survival. That's not a given these days - at least one friend seems to have serious medical condition - he's not the sort of person who would tell me details. I had another friend, I was due to meet up with him, then my mother spotted in the local paper that he had died suddenly at 62. He had been a nationally competitive swimmer and Rhodes Scholar at Oxford, distinguished career as a public servant -- I imagine his heart got him.

We all wind up in the same place, at the end. If you are lucky enough to have close friends and family to share the journey with, that's what's really important. Meaningful work if you are lucky. Your "success" will be gone the day you die.

Sorry, I cannot resist. Bruce Cockburn "Tie Me at the Crossroads when I Die"

https://www.youtube.com/watch?v=AwEZ6pakZLA
Tie me at the crossroads when I die
Hang me in the wind 'til I get good and dry
And the kids that pass can scratch their heads
And say, "Who was that guy?"

Tie me at the crossroads when I die
Looking outward see what you can see
By the time you look at something it's already history
As the echoes of our passing fade, all there is to say
Is, "You know I loved you all in my particular way"

Tie me at the crossroads when I die
Hang me in the wind 'til I get good and dry
And the kids that pass can scratch their heads
And say, "Who was that guy?"
Tie me at the crossroads when I die

....
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Valuethinker »

nisiprius wrote: Wed Apr 03, 2024 4:49 pm
snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
Well, cite some of that research so I can be sure that I am understanding exactly what it is saying or not saying, particularly what a "peer" is.

I already mentioned that I made a comparison. But I was comparing it to the median for people in my town, not "the whole United States."

Certainly, I make invidious comparisons whether that's good for me or not. But it is more things like visible standard of living compared to others on the same block. Yeah, I started to feel less good when I realized that within the last ten years, every house around mine had been resided, and ours still had ugly old siding. I do not believe "the only thing that matters" is the net worth percentile in the United States distribution. Certainly, I don't feel wealthy just because by having the median income in our high cost-of-living place, we are in a higher percentile than someone in a low cost-of-living place.

Furthermore, is it net worth the is "almost the only thing matters?" Or is it "status?" I felt somewhat dissatisfied that in my career, I didn't quite reach the highest position title for individual contributors at my workplace. Of course I know that rank was highly correlated with salary. But I was envious of so-and-so, not because of his salary, but because of his rank. On the other hand, I felt foolishly smug at having a cubicle adjacent to the row of windows, instead of one deeper inside the maze.
Humans are status driven.

We are no different from the other social primates in that regard. Maybe a bit more complex in the social structures we form, the size of our groupings. But basically social primates.

Money is... an odd invention. It doesn't eliminate what we are hard wired by our evolution and social nature to do, which is to seek status, to crave status, to respond to status.

I've "met" Her Majesty Queen Elizabeth the 2nd. Well been in the same room when an aunt was being decorated by her. Do I believe the House of Saxe Coborg Gotha (aka Windsor) is in any way special people? No. They just happen to rule the nation in which I live due to accidents of birth and history. Was I more than slightly in awe of HMQ when she came walking in, the 90 year old woman with her personal guard of Nepalese Ghurka soldiers? Bringing all that history with her? You bet.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by FoolMeOnce »

Greg in Idaho wrote: Wed Apr 03, 2024 7:57 am Given all the psychological torment that many face regarding when to retire, OMY syndrome, "is 2% withdrawal REALLY safe?!" ...I think these numbers can play a role helping people with a substantial portfolio get over the hump and pull the plug (I just wish my wife was one of them)...
Yes, it can be a good reality check for people wondering how they can get by on their millions. (Like me)
zie
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by zie »

NO. If I'm in the 50th percentile or the 99th, it is not practically useful information. So I'm rich compared to other Americans, what information does that do for me? It is not a useful number when it comes to personal finance or planning.

I can't think of any concrete useful action I can take knowing I'm in the XX percentile of Americans. It's bragging rights I guess? Since I'm not concerned with that, it's not helpful or useful.

Years of expenses invested *IS* a concrete useful piece of information to have. If I'm at 20X, it's too soon to think about retiring. If I'm @ 25X expenses, then I probably can seriously think about retiring if I wanted. If I'm at 50X, I have a too much money problem and it mostly doesn't matter what I do, I'll be fine. That's useful information to have.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
us_20231217
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by us_20231217 »

FoolMeOnce wrote: Wed Apr 03, 2024 5:24 pm
Greg in Idaho wrote: Wed Apr 03, 2024 7:57 am Given all the psychological torment that many face regarding when to retire, OMY syndrome, "is 2% withdrawal REALLY safe?!" ...I think these numbers can play a role helping people with a substantial portfolio get over the hump and pull the plug (I just wish my wife was one of them)...
Yes, it can be a good reality check for people wondering how they can get by on their millions. (Like me)
Agree with both of you, that's very true.
afan
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by afan »

CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

(Note: 85th percentile in 2023 = $2.1M ==> so it grew at over 7% CAGR vs 2.7% for CPI)

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
That is not how I interpret those figures. What they say to me is that the distribution of net worth for people 65 years old has increased faster than inflation. In other words, as a group, they have had growth in real terms. That is a good thing.

This says nothing about whether CPI captures the increase in costs for someone that age. It does not say that CPI is lower or higher than the growth rate of their costs. It provides no information at all about how accurately CPI captures cost increases for someone who was 65 then vs now.
Last edited by afan on Wed Apr 03, 2024 6:38 pm, edited 1 time in total.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
billaster
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by billaster »

Now I want my own Nepalese Ghurka soldiers.
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CraigTester
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

delamer wrote: Wed Apr 03, 2024 3:37 pm
CraigTester wrote: Wed Apr 03, 2024 3:15 pm
delamer wrote: Wed Apr 03, 2024 2:45 pm
CraigTester wrote: Wed Apr 03, 2024 2:08 pm Interesting observation using the calculator attached in the OP (by age for 2013 vs 2023)

$1M in 2013 ranked at the 85th percentile for a 65 yr old.

$1M in 2013, adjusted by CPI to 2023 = $1,307,000

$1,307,000 in 2023 ranked at the 78th percentile for a 65 yr old.

Implications:

To maintain purchase parity with "peers", one must achieve above inflation returns, as measured by CPI.

Said differently, if you just sit in TIPS (pacing inflation), you'll eventually fall behind in your ability to compete with your peers in purchasing.a product that grows by the rate of "inflation" as measured by CPI....

This to me is "actionable"

It supports the claim I've repeatedly heard on this forum that CPI is not an accurate (or "complete") way to measure "inflation"
Would you explain your conclusion that the above supports the claim that the CPI is not accurate?
85th percentile in 2023 = $2.1M ==> so it grew at over 7% CAGR vs 2.7% for CPI...

So let's say you and a friend in 2013 each had a $1M and were both at the 85th percentile.

You invested in TIPS (pacing inflation) and he invested in a mixed portfolio that earned 7% CAGR (4.3% above inflation)

Despite pacing inflation as measured by CPI, your wealth ranking fell to the 78th percentile = $1,307,000.

Whereas your friend happily doubled his $1M, but was surprised to learn he was still "only" at the 85th wealth percentile.

Now, let's say you and your friend are competing to buy a house in 2023....

You have "lost" purchasing power relative to your friend despite pacing inflation as measured by CPI

As discussed above, wealth is ultimately a "relative" term...

And although you paced inflation (measured by CPI), you did not maintain the purchasing power of someone at the 85th percentile ....

Your friend got the house.... because he preserved his purchasing power as defined by the 85th wealth percentile, Not CPI.
In your example, come 2023, each of my dollars still has the same purchasing power as each of my friend’s dollars.

My friend just has more dollars. But why does that mean he got the house? And how is the 85th percentile vs. 78th percentile difference relevant to the house purchase?

The CPI measures changes in the price of a fixed basket of goods/services over time. It is not in any way a measure of income.
Yes, examples are always a tough way to explain things.... but the underlying point is that the basket of goods, with which CPI is comprised, is not keeping pace with wealth percentiles...

So anyone who believes for instance, that TIPS will protect one's purchasing power, is being misled.....

And the punchline is that if you want to retain purchasing power, you have to allow some of your portfolio to "float" with things like stocks, etc....

I have come to think of it as "Staying neutral the market".....

IOW, Make sure your "currency" is ebbing and flowing beyond the basket of goods used by the government to calculate CPI....

And the funny things is, despite the philosophical attractiveness of "comparison being the root misery", we are all actually better off if we allow comparisons to lead us better investing.... IMHO of course.
TheNightsToCome
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by TheNightsToCome »

rogue_economist wrote: Mon Apr 01, 2024 4:16 pm It is worth noting that some economists define poverty in purely relative terms, and under such a framework it might be of interest to know where you are relative to the rest of the population as a sort of yardstick for evaluating if you need to accumulate more, etc. And arguably net worth percentile is going to be a very rough directional indicator of overall financial health.

That said, this approach seems too limited to be of much value. Without standardizing for age this calculator is not really that useful as it bakes in the effect of lifetime accumulation. Even age standardized percentiles however are going to be misleading as they don't take into account the rate at which net worth is changing, but instead represent only a static snapshot of assets in time. I suppose if I found that my age standardized net worth was on the low end I might be influenced to save more, but I wouldn't use this for any kind of precise decision making.
dqydj.com has net worth and income percentiles by age and by location, with and without counting home equity. They have a plethora of calculators and data.
billaster
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by billaster »

CraigTester wrote: Wed Apr 03, 2024 6:44 pm Yes, examples are always a tough way to explain things.... but the underlying point is that the basket of goods, with which CPI is comprised, is not keeping pace with wealth percentiles...
CPI is a measure of prices. It is not a measure of wealth or income.

If the rich get richer, that is a result of increasing income inequality. It has nothing to do with CPI.

If my next door neighbor gets a raise and is now richer than me, you think that means the CPI should change? My standard of living is still exactly the same.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by DSBH »

CraigTester wrote: Mon Apr 01, 2024 2:59 pm Does your net worth percentile influence your

1) Asset Allocation ?
2) Decision on when to retire ?
3) Decision on how much to spend ?
4) Something else about your financial life ?

There always seems to be a "Are you rich?" article percolating in the news, what do people do with this information?

Net Worth Percentile Calculator for the United States link below:

https://dqydj.com/net-worth-percentile-calculator/
Sure if I belong in the billionaire percentile I may buy a couple of yatchs, private jets, and castles etc, else generally no. My net worth though has certain impact:

1) Asset Allocation ? Regardless of net worth, was mostly stocks till 50, then gliding down to 60/40 by the time of retirement @59,
2) Decision on when to retire ? Offered severance and decided to retire with ~ 50X,
3) Decision on how much to spend ? Budget (at retirement) for a financially comfortable life, no plan to spend more even with a lot more money,
4) Something else about your financial life ? Gifting.
John C. Bogle: "Never confuse genius with luck and a bull market".
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CraigTester
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

billaster wrote: Wed Apr 03, 2024 7:13 pm
CraigTester wrote: Wed Apr 03, 2024 6:44 pm Yes, examples are always a tough way to explain things.... but the underlying point is that the basket of goods, with which CPI is comprised, is not keeping pace with wealth percentiles...
CPI is a measure of prices. It is not a measure of wealth or income.

If the rich get richer, that is a result of increasing income inequality. It has nothing to do with CPI.

If my next door neighbor gets a raise and is now richer than me, you think that means the CPI should change? My standard of living is still exactly the same.
If everyone in your town gets a raise and you don't, does that impact your purchasing power?

If everyone around you invests in a 50-50 portfolio that returns 6% above inflation and you invest in TIPS at 0% above inflation, does that impact your purchasing power?

CPI says the answer is no.... But I'm not so sure.... What say you?

What does it mean when net-worth tiers grow faster than CPI....?

My answer is, I'm not sure, but perhaps investing in a manner that has historically paced with the growth in net worth tiers might be a better idea than investing in a way that paces with CPI....

So full circle to the question of the thread.... yes or no?
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Dottie57 »

1) Asset Allocation ? No
2) Decision on when to retire ? No. I retired at 61 because I thought it was doable.
3) Decision on how much to spend ? No. It is size of my pot that determines what I spend.
4) Something else about your financial life ? …….
billaster
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by billaster »

CraigTester wrote: Wed Apr 03, 2024 8:47 pm If everyone in your town gets a raise and you don't, does that impact your purchasing power?
No, it does not. Gasoline is still $3.50 a gallon and peanut butter is still $3.50 a jar.
CraigTester wrote: Wed Apr 03, 2024 8:47 pm If everyone around you invests in a 50-50 portfolio that returns 6% above inflation and you invest in TIPS at 0% above inflation, does that impact your purchasing power?
No, it does not. Gasoline is still $3.50 a gallon and peanut butter is still $3.50 a jar.
CraigTester wrote: Wed Apr 03, 2024 8:47 pm What does it mean when net-worth tiers grow faster than CPI....?
It means that income inequality is increasing. It means that more of the national income is accruing to the rich. If you think that is a problem, then you need to address income inequality, not the CPI. You have to identify the problem correctly if you want to change it.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by unwitting_gulag »

CraigTester wrote: Wed Apr 03, 2024 8:47 pm
billaster wrote: Wed Apr 03, 2024 7:13 pm
CraigTester wrote: Wed Apr 03, 2024 6:44 pm Yes, examples are always a tough way to explain things.... but the underlying point is that the basket of goods, with which CPI is comprised, is not keeping pace with wealth percentiles...
CPI is a measure of prices. It is not a measure of wealth or income.

If the rich get richer, that is a result of increasing income inequality. It has nothing to do with CPI.

If my next door neighbor gets a raise and is now richer than me, you think that means the CPI should change? My standard of living is still exactly the same.
If everyone in your town gets a raise and you don't, does that impact your purchasing power?

If everyone around you invests in a 50-50 portfolio that returns 6% above inflation and you invest in TIPS at 0% above inflation, does that impact your purchasing power?

CPI says the answer is no.... But I'm not so sure.... What say you?

What does it mean when net-worth tiers grow faster than CPI....?

My answer is, I'm not sure, but perhaps investing in a manner that has historically paced with the growth in net worth tiers might be a better idea than investing in a way that paces with CPI....

So full circle to the question of the thread.... yes or no?
The "rich getting richer" and rising income inequality is to say the least a fraught topic. But if in aggregate everyone had more money, then effectively no one had more money. Money is a claim on other people's labor. If we all had more money, we'd all have more such claim, meaning that... nobody would have any more claim. Call it inflation if you like.

My own feeling is that if the hyper-rich get richer, that doesn't affect me, as I'll never vie with them anyway. But if "peers" (however that's defined!) grow richer than me, not only would that engender miffed feelings of distaste, envy and relative loss, but it would also mean diminution of my purchasing power. Similarly, if the less affluent become richer, then my claim on their labor diminishes. Income inequality, as generally beheld in the popular imagination, is largely about the already very-rich pulling even further away. Again, this doesn't bother me. Income compression, on the other hand, bothers me substantially. Speaking coarsely, my "wealth", such as it is, is only operative wealth, in the context of a vast majority of poor(er) people. It might sound disgusting, but I think that it's true, that for there to be wealth, there has to be overall poverty.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

billaster wrote: Wed Apr 03, 2024 8:57 pm
CraigTester wrote: Wed Apr 03, 2024 8:47 pm If everyone in your town gets a raise and you don't, does that impact your purchasing power?
No, it does not. Gasoline is still $3.50 a gallon and peanut butter is still $3.50 a jar.
CraigTester wrote: Wed Apr 03, 2024 8:47 pm If everyone around you invests in a 50-50 portfolio that returns 6% above inflation and you invest in TIPS at 0% above inflation, does that impact your purchasing power?
No, it does not. Gasoline is still $3.50 a gallon and peanut butter is still $3.50 a jar.
CraigTester wrote: Wed Apr 03, 2024 8:47 pm What does it mean when net-worth tiers grow faster than CPI....?
It means that income inequality is increasing. It means that more of the national income is accruing to the rich. If you think that is a problem, then you need to address income inequality, not the CPI. You have to identify the problem correctly if you want to change it.
Or... it simply means that investment asset valuations are increasing faster than CPI....

So if you own those appreciating assets, (e.g. "inflating" assets) your relative wealth position stays neutral.... This will remain true whether these investment assets inflate or deflate.....

So one variant of the question of the thread is, do we invest to maintain our ability to buy the same amount of peanut butter ....

Or do we invest to maintain our relative wealth position..... ?

Both are surprisingly easy to do..... (TIPS versus a 50-50 balanced fund as a possible example...)

P.S. It would be interesting to see how the returns of a balanced fund have compared to changes in wealth-tiers over the years.....

My guess is they are pretty close.... but have only spot checked.....

My own takeaway from all this is to stay "neutral the market".... However, if we get another 1929 type crash, the guy holding 100% TIPS is going to be able to buy more peanut butter than me...., even though I will retain my same wealth tier.... :happy
gotoparks
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by gotoparks »

Net worth is something that Quicken tracks automatically, so I see it every day. I used to hand calculate once a year. I live off my salary so that influences spending or saving. I am not retired.
thedaybeforetoday
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by thedaybeforetoday »

Tundrama wrote: Wed Apr 03, 2024 7:21 am Nope, on all.

A fun example is happening as we speak. We have several million. Our new dentist has been a nightmare for the past two years. We live very remote so we are giving this office a good try and tolerating more than we should.

They keep telling us we owe $300 for a cleaning when we only use insurance that covers all cleanings. Their billing person is completely defunct at their job.

Point of my story, I’ll fight for wrongly being billed as much now as when I was in college eating ramen noodles and showering in PBR. In fact, maybe more so now as I realize you work your whole life to get It, and some are always attempting to take It.
Yes!
I find now that we have a pile and are FI, my part time job is keeping everyone else's hands out of my pockets that don't deserve or have a right to be in there. It's a sport called capitalism it seems.
Keep on truckin'
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by thedaybeforetoday »

snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
Or perhaps there are other options in addition to the dichotomous, false forced choice you propose such as...

The reality that pensions, social security, the quality of ones health insurance and other such current or future annual/monthly payments or mechanisms that reduce costs others (peers perhaps?) may have, that have a real impact on one's quality of life, have no bearing on one's net worth.

Therefore, to me, net worth as a metric has marginal to no utility (I'm being kind here) in planning, nor how net worth impacts one's lifestyle.

Guess for some it's a fun parlor game and or bragging rights if one needs that kind of reassurance....

As for me, the time I spent posting on this thread is more time than I think I've spent on this topic in my lifetime.
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

thedaybeforetoday wrote: Thu Apr 04, 2024 5:15 am
snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
Or perhaps there are other options in addition to the dichotomous, false forced choice you propose such as...

The reality that pensions, social security, the quality of ones health insurance and other such current or future annual/monthly payments or mechanisms that reduce costs others (peers perhaps?) may have, that have a real impact on one's quality of life, have no bearing on one's net worth.

Therefore, to me, net worth as a metric has marginal to no utility (I'm being kind here) in planning, nor how net worth impacts one's lifestyle.

Guess for some it's a fun parlor game and or bragging rights if one needs that kind of reassurance....

As for me, the time I spent posting on this thread is more time than I think I've spent on this topic in my lifetime.
So is investing to simply keep up with inflation “good enough”…?
Even if your relative purchasing power declines?
Kinda interesting that those aren’t the same thing…..Doesn’t ultimately seem sustainable….
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by nisiprius »

CraigTester wrote: Thu Apr 04, 2024 6:24 am ...So is investing to simply keep up with inflation “good enough”…?
Even if your relative purchasing power declines?
Kinda interesting that those aren’t the same thing…..Doesn’t ultimately seem sustainable….
All you've done is to use new terms to describe "skewed wealth distribution," "income inequality," and "lifestyle creep."

As to what is "sustainable," no, I don't think an increasingly skewed wealth distribution is indefinitely sustainable, but that's for social and political reasons that can't be discussed.

Now what would be interesting would be find some actual historic numbers on "average lifestyle creep," because that's certainly a thing and it would be nice if there were a way to make a rational allowance for it. Forty years ago, we "needed" and paid for four utilities: water, gas, electricity and phone. Now we "need" high-speed internet, too. Forty years ago I didn't need to pay for shingles and RSV and pneumonia because there was no way to prevent them; there are extra medical treatments too valuable to ignore and they cost extra. Forty years ago, we got by with one window A/C in our bedroom, which we used a couple of weeks a year; now we are seriously asking ourselves if a house without central air is substandard.

But beyond that? Yes, if wealth distribution becomes increasingly skewed, then maintaining purchasing power will not maintain your net worth percentile.

Is the wealth ratio between you and Jeff Bezos is increasing or decreasing? Do you care? It sounds as if you actually do. It is, apparently, not satisfactory to you to lose relative ground to Jeff Bezos.

Please believe me when I say that I don't. I really don't. Until five minutes ago I didn't know what percentage of Jeff Bezos' net worth mine is. Not even in the number of zeroes after the decimal point. I honestly have no interest in holding it constant.

What I personally do care about whether we can pay to replace those old windows, can I make the expensive co-pays on the new prescription my doctor ordered, and what's going to happen to our electricity rates.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by CraigTester »

nisiprius wrote: Thu Apr 04, 2024 7:49 am
CraigTester wrote: Thu Apr 04, 2024 6:24 am ...So is investing to simply keep up with inflation “good enough”…?
Even if your relative purchasing power declines?
Kinda interesting that those aren’t the same thing…..Doesn’t ultimately seem sustainable….
All you've done is to use new terms to describe "skewed wealth distribution," "income inequality," and "lifestyle creep."

As to what is "sustainable," no, I don't think an increasingly skewed wealth distribution is indefinitely sustainable, but that's for social and political reasons that can't be discussed.

Now what would be interesting would be find some actual historic numbers on "average lifestyle creep," because that's certainly a thing and it would be nice if there were a way to make a rational allowance for it. Forty years ago, we "needed" and paid for four utilities: water, gas, electricity and phone. Now we "need" high-speed internet, too. Forty years ago I didn't need to pay for shingles and RSV and pneumonia because there was no way to prevent them; there are extra medical treatments too valuable to ignore and they cost extra. Forty years ago, we got by with one window A/C in our bedroom, which we used a couple of weeks a year; now we are seriously asking ourselves if a house without central air is substandard.

But beyond that? Yes, if wealth distribution becomes increasingly skewed, then maintaining purchasing power will not maintain your net worth percentile.

Is the wealth ratio between you and Jeff Bezos is increasing or decreasing? Do you care? It sounds as if you actually do. It is, apparently, not satisfactory to you to lose relative ground to Jeff Bezos.

Please believe me when I say that I don't. I really don't. Until five minutes ago I didn't know what percentage of Jeff Bezos' net worth mine is. Not even in the number of zeroes after the decimal point. I honestly have no interest in holding it constant.

What I personally do care about whether we can pay to replace those old windows, can I make the expensive co-pays on the new prescription my doctor ordered, and what's going to happen to our electricity rates.
To your question, no I don't care at all how my wealth compares to Jeff Bezos. And I also don't have a lot of energy for conversation about income inequality, etc.... I would classify that as an apple-versus-a-political-topic.

Rather what I'm pontificating about is the idea that our investments are our "currency".

And there are different ways to measure whether the purchasing power of one's "currency" is maintaining purchasing parity over time.

As in our earlier example, $1M in 2013 is the inflation adjusted equivalent of $1,307,000 in 2023.

But while $1M bought you admission into the 85th percentile club in 2013, its CPI adjusted equivalent only provides admission into the 78th percentile club in 2023.

Given that our entire economy operates on supply-v-demand, it smells like the ultimate extension of not retaining one's wealth percentile over time, is a degradation of one's purchasing power in the "real" world. (See what I did there?)

So the takeaway is not a complaint from the "it's not fair club"....

But rather it's a cautionary note that we need to invest in way that is "neutral" the entire economy.... Not just CPI.

Most here probably already do this... but not all.... Go visit a TIPS thread for example...
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by thedaybeforetoday »

CraigTester wrote: Thu Apr 04, 2024 6:24 am
thedaybeforetoday wrote: Thu Apr 04, 2024 5:15 am
snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
Or perhaps there are other options in addition to the dichotomous, false forced choice you propose such as...

The reality that pensions, social security, the quality of ones health insurance and other such current or future annual/monthly payments or mechanisms that reduce costs others (peers perhaps?) may have, that have a real impact on one's quality of life, have no bearing on one's net worth.

Therefore, to me, net worth as a metric has marginal to no utility (I'm being kind here) in planning, nor how net worth impacts one's lifestyle.

Guess for some it's a fun parlor game and or bragging rights if one needs that kind of reassurance....

As for me, the time I spent posting on this thread is more time than I think I've spent on this topic in my lifetime.
So is investing to simply keep up with inflation “good enough”…?

For me yes. Any other comment around societal or macro issues or concerns would seem to brush up against forum rules

Even if your relative purchasing power declines?
Kinda interesting that those aren’t the same thing…..Doesn’t ultimately seem sustainable….
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Walkure »

snowday2022 wrote: Tue Apr 02, 2024 6:10 pm
delamer wrote: Tue Apr 02, 2024 5:53 pm
snowday2022 wrote: Tue Apr 02, 2024 5:43 pm Most research in this field suggests that almost the only thing that matters about one’s income and NW is how much it is relative to peers. So either the research is wrong or everybody posting here is fooling themselves.
What is a peer in this context?
It is complex and variable. Look up the Easterlin Paradox. There is certainly a range to which people are susceptible to this and perhaps BHs do this less.
Looked into this, and it's interesting. The two main hypotheses to explain the paradox are social comparison and hedonic treadmill, which are both effects from the relative side of the paradox, one operating in the moment and the other over time. But I think there is a third phenomenon behind it, which is that "happiness," while itself a state of being, is not induced solely by one's present state. Everyone today who would describe themselves as happy is in some part making a statement about their future selves. The expectation that tomorrow has the potential to be better than today, and that the means to obtain that subjective improvement is within my ability to effect, is a powerful element of personal motivation and satisfaction.

If you get to tomorrow and it is in fact better than today because you "did the work," then you are happy - but not materially more happy than you were yesterday thanks to the hopeful expectation you had. In short, optimism about the future is like the lifecycle investing of hedonism. You borrow satisfaction from your expected future well-being to leverage your consumption of happiness in the present. Pessimism is like deleveraging your expectations, with a consequent reduction in the risk of falling short, in exchange for less reward (being kinda lowkey miserable in the here and now).
billaster
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by billaster »

CraigTester wrote: Thu Apr 04, 2024 8:33 am And there are different ways to measure whether the purchasing power of one's "currency" is maintaining purchasing parity over time.

As in our earlier example, $1M in 2013 is the inflation adjusted equivalent of $1,307,000 in 2023.

But while $1M bought you admission into the 85th percentile club in 2013, its CPI adjusted equivalent only provides admission into the 78th percentile club in 2023.

Given that our entire economy operates on supply-v-demand, it smells like the ultimate extension of not retaining one's wealth percentile over time, is a degradation of one's purchasing power in the "real" world. (See what I did there?)

So the takeaway is not a complaint from the "it's not fair club"....

But rather it's a cautionary note that we need to invest in way that is "neutral" the entire economy.... Not just CPI.
I think the confusion here is your use of the term purchasing power parity. You seem to be using it in a "keeping up with the Jones" sense. But that is not what purchasing power parity means. It is a term from macroeconomics that refers to a comparison between the currencies of different countries. It is a way of determining how much money is required in each currency to buy the same basket of goods in that country.
https://en.wikipedia.org/wiki/Purchasing_power_parity

What you seem to be talking about are changes in the standard of living and changes in real (inflation adjusted) wages over time. That change is measured using the CPI. If you get a $3 wage increase and inflation goes up by $1, then you have a read (inflation adjusted) wage increase of $2. Your standard of living has gone up by $2.

Below you can see a chart of real (inflation adjusted) wages over time. This shows wages after subtracting inflation so it represents a real increase in the standard of living. From the chart you can see that the median person in 1980 made less than the median person today. If that person in 1980 only kept up with inflation, they would not be poorer. They would just have the same standard of living, able to buy the same amount of goods today as they did in 1980, but they would be behind the median worker of today who has a higher standard of living because their real wages have increased.

Note that despite the recent inflation, the real wage and standard of living is higher today than it was before the pandemic. You can ignore the big spike around 2020. That is a statistical artifact that lots of low wage earners lost their jobs which artificially increase the calculated median of those with high wages still having jobs. They didn't really get that spikey wage increase increase -- its just that low wage people disappeared from the average.

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Charles Joseph
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by Charles Joseph »

No. But interestingly, my hunch is that I'm one of the poorest retirees on Bogleheads, and yet my wife and I are in the 86th percentile for net worth, ignoring our home equity.

I think one of the things that shows is how desperately unprepared so many Americans are for retirement.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
billaster
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Re: Does your net worth percentile influence your financial decisions...? (Calculator attached)

Post by billaster »

I think if you want to keep the discussion on track, then you should reframe it in terms of standard of living or something like real wages rather than "purchasing power parity".

If someone keeps up with inflation, they do not lose "purchasing power". By definition of inflation, their "purchasing power" remains exactly the same. They will always be able to buy the same amount of goods and services. They will have exactly the same standard of living over time.

What you seem to be talking about is the fact that over time, real wages and standard of living increases, primarily to increases in productivity. So a person who only keeps up with inflation does not get poorer. They maintain the same standard of living. But they will fall behind those whose real income increases and standard of living increases. They may feel poorer in comparison because their neighbor can buy a bigger car than them, but they are not actually poorer.
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