Friday, November 26, 2010

He Thought He Was Rich. Whoops!

The subjective definition of "rich" is easy: Anybody with noticeably more money than me is rich.

Objective definitions are elusive. Is anyone with income over $200,000 rich, as proponents of limiting the Bush tax cuts assert? $300,000?

To generate $300,000 a year, using Tiger 21's 3% rule, requires $10 million in investable assets. Yet $300,000 per annum doesn't allow for much rich living, as big-city professionals with kids in college have pointed out.

In marketing we often say "rich" – that is, ultra-high net worth – starts at $30 million.

Nick Martin, the man whose plight The New York Times examines here, behaved as if $10 million made him really rich. He now knows that was a mistake. Though he blames investment setbacks and poor advisers, the prime culprit appears to be himself. He spent more than half the $10 million buying and improving residences here and abroad.

Perhaps the subjective definition of "rich" is best after all. Even if a liquidity event brings $30 million, the recipient will realize he or she can't live like those with $300 million.

Good wealth managers help new clients understand the relativity of "rich." The value of this service may exceed their fee.

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