- Published on Thursday, 28 June 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 942
Earning a lot of money doesn't mean you're rich. First you need to outsmart the sharks.
America's fiscal future is bleak... and it's all HENRY's fault.
Let's use my good friend to build the thesis. He's an obstetrician -- fresh out of residency. By common logic, he should be rolling in the dough.
He should have a new Mercedes.
He should play three rounds of golf each week.
He should go home each afternoon to a fancy McMansion at the end of a cul-de-sac.
But he doesn't.
Instead, he rolls into a cluster of condos driving an old minivan. And working six days a week, he's got no time for his three kids, let alone 18 holes of golf.
The problem is, he's a HENRY.
It's the econo-world's hottest buzz term: High Earner Not Rich Yet.
My friend is living every ambitious kid's dream. He's a doctor earning well into the six figures each year. But the kid in the condo next door who earns a living painting houses is living a much richer life.
By most measures my friend is broke.
His paycheck is fat (at least the figures at the top)... but his net worth is deep in negative territory.
His problem is debt. It ain't cheap to become a baby catcher. The guy spent the last quarter-century in school -- and all the important classes were paid for with borrowed money.
We've all heard the facts: The average college student graduates with $25,000 in debt.
The average newly crowned doctor? Try $158,000 in IOUs.
In all, docs lay claim to some $2.3 billion in student loan debt, with a third of med students owing over $200,000 by the time they start working for a living.
It's an even more daunting figure when we add decades' worth of interest -- either 3.4% annually or 6.8% if Congress doesn't act by Saturday.
Of course, it's not just doctors and their student loans. It's lawyers (but they had it coming). It's B-school consultants. And it's an army of entrepreneurs and their freshly minted businesses.
In the New America, I hate to tell you, making a ton of money doesn't make you rich.
Before you can claim that prize... you've got to outsmart a desperate government and a market rigged against you.
The most commonly cited killer of HENRY wealth is the Alternative Minimum Tax.
Because these high earners aren't rich enough to take advantage of the same kind of loopholes the uber-rich use to drop their tax rate to 10%, HENRYs get caught in Uncle Sam's most devious trap -- the AMT's dreaded 26% rate.
What's worse though is HENRYs have nowhere to plant their sprouting acorn of wealth.
They are smart enough to know today's stock market is no more than a shark tank filled with monsters sniffing for the sweet scent of fresh blood.
And yet... the government says these do-gooders are too "poor" and "uneducated" for sophisticated investments like private equity or hedge funds. You've got to be "accredited" to invest with the best. (Oddly, though, Washington has no problem creating a conduit to saddle these youngsters with $200,000 worth of student loans.)
And with the burden of huge debt, you can bet HENRYs aren't spending, either.
My friend has one of those coveted doctor-only parking spots next to the hospital, but until he pulls himself from his tornado of despair, he parks his minivan at the back of the lot.
There's no Mercedes in his future -- not even one of the cheap ones.
My friend and his fellow HENRYs are caught in the kind of middle-class trap that has sucked the life out of the American economy.
Remember, the nation's high earners are responsible for the bulk of consumer activity. In fact, HENRYs make just 20% of the nation's income... but are responsible for 40% of all spending.
That means when they go broke... America goes broke.
And don't think your friendly representative in Washington is losing sleep over what's happening. He likes it just the way it is.
If you're poor, you'll vote for whoever gives you the most. That means you've got a cushy backstop no matter how much you hate hard work.
And the politicians have no reason to target the super-rich. The ultra-wealthy are responsible for the "donations" that swing elections. They've got the power in Washington.
But if you're stuck in the middle... tough. Your vote cancels your neighbor's vote. You need to fend for yourself.
Here's the important part.
The odds are you'll fail and become one of the dependent poor. The rolls are growing by the day -- 45.8 million on food stamps and counting. That's 15% of the nation.
Or, you may get lucky and beat the odds and suddenly become rich enough to matter.
But there's no way you and the family that trustfully follows in your footsteps will forever hover in the middle. It's impossible.
The solution hinges on the six core tenets I told you about yesterday. We used them to lock in gains of close to 50% on Tuesday. And yesterday we saw my favorite "unconventional" play surge by over 10%.
Our trick is simple. We stray from the herd and take our own path. It's lonely and we get picked on a lot... but it's profitable.
Again, the "traditional" American dream is dead.
It was destroyed by greed and sloth.
It's no longer a chicken in every pot and a car in every garage. Nowadays... it's either food stamps and public transportation... or caviar and a Ferrari.
Welcome to the New America... it's you versus them.
From the Inside,
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