Skim milk masquerade as a cream — Part I

Image source: Anastase Maragos / Unsplash

Wealth is astonishing. Everyone wants it. Few people achieve it. Some people who have it take it for granted. Think of Harry and Megan. They imply that they want to be separated from the source of wealth. Conversely, many who do not have wealth claim to have it. This series separates really wealthy people from false people and enjoys doing so a bit. Myth Buster is not going to show you how to be wealthy. Annoying TV ads about cheap deals and the value of gold with lots of people are betting that area.

Part 1 describes a diligent and successful individual who earns more than his neighbor Jones and thinks he is doing well financially. Readers will find that this is not a political interpretation. The focus is on finance!

Here’s a high-level financial overview of successful executives:

This portrait constitutes an enviable financial situation. Many would call such a person “wealthy,” “successful,” or even “rich.” Let’s take a closer look.

This executive lives in a home worth over $ 700,000. That’s impressive, but according to Zillow, San Francisco’s average asking price is $ 1.3 million. The house was purchased five years ago, and executives are still borrowing $ 500,000 in principal. Monthly payments are over $ 4,000, accounting for more than half of takeaway payments. According to, total US mortgage debt is over $ 15 trillion.

If pushed by a huge mortgage, this successful executive is ready to say that the house is his or her best investment. This is true when two things are happening. First, the house will have to be fully owned without debt. Second, the owner must be willing to sell the home — after all it’s just an investment — and must live somewhere. The huge mortgage debt in the United States shows that few can support this popular claim.

Then there are food, oil, credit cards and all other invoices. One car will pay off. The second was purchased with a mortgage that executives are borrowing $ 650 a month for the next three years. Two teenage children in the family are expected to attend a private university. Neither kid is a basketball superstar. When husbands and wives discuss college, there is a reaction that they have savings and may set up another fund to pay the college. Even if you can save money, the idea of ​​going to a “cheap” college or getting an associate degree at a community college before transferring to a four-year college is quickly discontinued. Don’t forget Jones!

Successful executives also believe that the stock market may bring a plunge. Despite the coronavirus, the market surge from 2019 to 2020, and generally after 2016, provides families with a bunch of cash to cover the high years when both children are in college. maybe. University costs are rising faster than the market. All the executives featured here have been successful and have worked hard to reach their current location, but it is clear that this is not a wealth profile. And it doesn’t mention inflation.

Taxes are also a burden. Did you notice that you pay capital gains tax after the market rises, but usually you get little profit when the market goes down and you are taxed again when the market rises again the following year? To make matters worse, consider the significant rise in the stock market in 2019. After that, the coronavirus broke out and the market fell early. However, those who own stocks and trusts still had to pay large taxes on capital gains in 2019. These are fragile gains that appear to disappear before and after the tax period.

Many observers trumpet retirement plans. Consider the amount of money you have in your US 401 (k) and 403 (b) plans. This is estimated to exceed $ 32 trillion. Fidelity alone manages over $ 3 trillion and has many competitors. About 4% of Americans who become millionaires usually do so through the money they have accumulated in their retirement plans. The old-fashioned pension system (now common to civil servants), where the employer pays monthly at retirement, does not appear to be the property of the employee. It is the employer’s duty. However, the 401 (k) and 403 (b) plans are personal property of the individual. The US retirement plan is estimated to account for about one-third of household wealth.

Avid observers will find that owning an asset or “household income” does not mean that they can actually spend money or access cash. Yes, you may end up with “poor cash”. There is also a penalty for withdrawing the money held in your retirement plan before you retire. If you are still working and paying, it can hurt your tax situation.

The title of this series comes from Jonathan Swift. Skim milk impersonates cream. So far, this myth has been very well held. The emergence of wealth can include assets that cannot even be touched for years to come. The next entry looks at another aspect of apparent wealth.

Michael McTague, Ph.D. He is the Executive Vice President of Able Global Partners in New York, a private equity firm.

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Equity News Contributor: Michael McTague, Ph.D.

Source: Equity news

The views and opinions expressed in this article are those of the author and are not necessarily the same. Readers should not consider the author’s remarks as a formal recommendation and should consult with a financial adviser before making an investment decision. To read the full disclosure, please visit:

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