OK, so I am in fantasy land here but after reading the Gapgemini Merrill Lynch World Wealth Report, I started wondering just what it would like to join the 85,400 world wide members of the Ultra HNWI club. The price of admission is financial assets of at least US$30 million. I am probably not alone in thinking that this is a staggering sum of money for the average person to aspire to, but 0.0000128% of the world's population got there. How?
There is a degree of speculation to this, but my expectation is that most of the Ultra HNWIs made their money in one of five ways:
1. Inheritance: unfortunately, I chose the wrong parents for this purpose (for other purposes I made a pretty good selection);
2. Employment: most of the people in this category will be corporate ceos, investment bankers and fund managers (any others?). Only a tiny portion of the workforce will earn enough. Unfortunately, a quick look at my current pay and future prospects suggests that this is not likely to get me there prior to my intended retirement date (or at any other time);
3. Entertainment: TV, movies, music, sports and a few other activities. People falling into this category generally possess exceptional talent or some other rare attribute that I am sadly lacking;
4. Business: people who own their own business. Not sure what to say about this one other than that I don't see myself owning my own business;
5. Investment: its possible but instinctively I assumed that the returns on investment would have to be materially above the long run market average.
I ran two scenarios to see how hard it would be to achieve Ultra HNWI status in real terms under 2 (Employment) and 5 (Investment). Both assume inflation at 3%.
Scenario #1 - the diligent saver
A person enters the work force at age 20, saves $5,000 pa increasing at a nominal rate of 5% and earns 11% on her investments (roughly the long run return on stocks). How many years will it take before she becomes an Ultra HNWI? Answer: in nominal terms, it would take 57 years (worth about $5.7 million after adjusting for inflation). In real terms it would take 79 years.
Conclusion: most of us will run out of time before we get there by saving and investing.
Scenario #2 - starting rich
A person starts out as an entry level member of the HNWI club with assets of $1 million. If we assume that he earns 11% on his investments and ignore savings, how long will it take to achieve Ultra HNWI status? Answer: in nominal terms, it would take 33 years (worth about $11.8 million after adjusting for inflation). In real terms it would take 46 years.
Conclusion: even for the already rich, promotion to the Ultra HNWI division takes a long long time.
Now back to reality.