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Introduction to the WealthRanking™
The purpose of the Wealth$im web site
is to provide you with a simple, yet powerful simulation tool allowing you:
- to check where you “rank” relative to other US residents in terms of your current
income and personal wealth,
- to test the impact of various key financial and investment strategies on
your ability
to accumulate future personal wealth,
- to project your net worth (wealth) as of retirement (65),
and
- to check the developments
in your personal income and wealth ranking during your professional career.
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Where you Rank
Where do you fit in? Where do your current income and personal wealth put you relative
to other US households? What will be your income and wealth status when you turn
65? We have the answers!
This website will provide you with your current income and wealth ranking relative
to the other 112 million US households. All you will need to do is to input a few
personal financial data at the privacy of your own home. Moreover, the Wealth$im
model will simulate the developments in your income and wealth based on a handful
of key strategic decisions you make. Finally, it will project the changes in your
income and wealth ranking taking into consideration the likely dynamic developments
in the US income and wealth growth and distribution.
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US Household Wealth and its Distribution
The US economy has created personal wealth on a scale unparalleled
anywhere in the history of the World. As of yearend 2006, the 112 million US households
(300 million people) had a total net worth of $56 trillion. Historically, the US
household wealth has roughly doubled every decade since 1945, when it was $0.7 trillion.
Total disposable income in the US was approaching $10 trillion in 2006. It too has
more or less doubled every 10 years.
However, the distribution of personal income and
wealth is heavily skewed towards the rich. The threshold to make the top 1% income
bracket is currently about $400,000 a year. The top 10% (involving 3 million individuals)
collectively enjoyed almost as much income as the bottom 50% (150 million).
The distribution of personal wealth is even more
skewed with the top 1% bracket accounting for about 1/3 of the total US household
wealth and the top 5% holding ½ of all wealth. You now need a net worth of over
$1 billion to be on the Forbes 400 list of the richest Americans and the number
of US millionaires is above 10,000 people or about 9% of the population. The table
below illustrates the estimated current thresholds to qualify for a selected number
of personal income and wealth brackets, as well as the collective share of all income
and wealth held by the respective brackets.
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The Wealth Ranking Simulation Model
At the heart of the Wealth$im site is a complex and unique simulation model, which
amongst others incorporates the dynamic relationships between economic growth, inflation,
interest rates, savings and asset prices (stocks, bonds, T-Bills, money market and
real estate). While projecting likely development scenarios for your personal wealth
during your professional career, the model also puts your situation into the context
of the continued developments for the US economy and other US households.
Note that
each simulation run is unique. The model has been created to generate as realistic
results as possible, taking into consideration random market cycles. These “bull”
and “bear” markets are consistent with the historical experiences both in terms
of magnitude as well as interrelationship between the price cycles of individual
asset classes. We encourage you to test out various different strategic decisions
and assumptions as far as income growth rates are concerned to become familiar with
the model.
Running the model multiple times will also provide you with important
lessons related to each of the core strategic decisions you make. E.g., what is
the impact of following alternatives?
- Saving a few percent more early in your
career to accumulated wealth enabling a higher standard of living after retirement?
- Stretching your finances to live in as nice home as you can throughout your career?
- Maintain an asset allocation strategy favoring stocks over more safe alternatives
such as bank deposits, money market and bonds?
- Applying an aggressive versus
a conservative strategy as far as the use of debt?
- Selecting between major borrowing
instruments such as mortgage, home equity loans, bank loans and credit card debt.
Good luck! Most importantly, we wish you a prosperous and healthy career.
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