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Wealth and the Appearance of Wealth

Some people look wealthy and aren't. Others are wealthy and don't look it. So the APPEARANCE of wealth is often a poor guide to actual wealth.

Appearance is good at measuring one aspect of wealth. That is, how much money has been spent on a person in the past. A certain "look" or air, a strong acquaintance of luxury goods and travel, may be a guide to what's gone on before. But that's not necessarily a good guide to the future.

I have two friends. One in a Wall Streeter who makes six figures, dresses in $2,000 suits, RENTS (not buys) apartments in trendy parts of town, is well-traveled (largely on business) and sophisticated, and seems wealthy. But his cash balances are in the five figures (on a good day). Throw in a some retirement assets and his net worth is in the low six figures.

The other makes a fraction of the first, and has a seven figure net worth. He dresses down, doesn't eat well, but saves (and invests) like hell. He has a wide portfolio of asset classes ranging from IRAs and 401Ks, to taxable accounts, to real estate, and DPPs (direct participation programs) in things like oil and gas wells. He's not nearly as much of a man of the world as the first, although he certainly knows about investments.

Wealth guru Thomas Stanley opined that the true measure of wealth was net worth to annual income. For instance, a 50-year old would be doing well if his/her net worth were ten times income. A $25,000-a-year postal clerk with a $250,000 IRA would qualify.

The Wall Streeteer has a six figure net worth less than one times annual salary. The other, a seven figure net worth on a five figure income that is a multiple of ten times.