Based on our own peer group we tend to have a limited perspective on the reality of global wealth dispersion. Some stats from World Bank economist Branko Milanovic’s book “The Haves and Have-Nots” offer some perspective on the world’s 7+ billion citizens:
-the top 50% of global income earners make $1,225 a year
-the top 20% bring home $5,000 a year
-the top 10% earns $12,000 a year
-never mind the top 1%…to make into the top 0.1% of global earners requires income of just $70,000 a year.
Now for a further reality check. Earning 70K a year while working may seem modest to some in the west, but in order to earn that same $70,000 a year in retirement (before tax!), in the current low rate, low yield environment, one would need to have more than $3 million in capital saved (outside your house and other non-productive assets).
For those who don’t like this math and wish to force their capital into riskier assets in order to extract more passive income, the truth is that dividend paying stocks and “high-yield” debt today are so over-valued, that even if one were to put 100% of their life savings into these riskier asset classes, they would still have a difficult time sustaining more than 3% a year in income withdrawals, even while facing a greater than 80% probability of losing chunks of their capital over every time period within the next 10 years. Nevertheless this is the bright idea, recommended by nearly every financial planner and asset manager in the world today. Good plan for whom?
We don’t get to pick the valuations and market conditions we are living through today, but we do get to pick our response and risk exposure to them. Our behavior and willingness to understand math drives the bulk of investment outcomes.