Transcript
Robert Brokamp (0:05)
How much does it take to be considered wealthy in America and why most people should delay claiming Social Security? You're listening to the Saturday personal finance edition of Motley Fool Money. I'm Robert Brokamp, and this week we speak with Dr. Michael Finka about the recent trend of Americans claiming Social Security security earlier and why most economists think that's probably not a good idea. But first, let's start with our last week in Money segment. So I have a question for you. What net worth does someone need to be considered financially comfortable? And what net worth makes someone wealthy? Schwab asked those questions in its recently published Modern Wealth Survey, and the average responses to those questions were that to be considered comfortable it takes a net worth of $839,000 and to be wealthy you need $2.3 million. I first heard about this survey from USA Today journalist Daniel de Vise, who asked for my take for an article that he wrote on the survey. And here's what I said. There's no right number for every single person. Of course, what really matters is that if you could meet the four criteria for financial well being as laid out by the Consumer Financial Protection Bureau, and they are, number one, having control over day to day and month to month finances number two, having the capacity to absorb a financial shock number three, being on track to meet your financial goals and number four, having the financial freedom to make the choices that allow you to enjoy life. If you meet all those criteria, I'd say you're comfortable. And if you're significantly exceeding them, perhaps by being well ahead in terms of meeting your financial goals, then I think you could consider yourself wealthy. For our next item, I have another question for you. Which country's stock market is performing the best so far in 2025? Did you say Poland or Greece? Well, you're right, I'll accept either answer because they both have returned almost 60% this year. Then you have the stock markets in Spain, South Korea and Austria, which have returned more than 40%, and the markets in Vietnam, Germany and Italy, which have returned more than 30%. Overall, the entire international stock market has returned 18% this year, while the US stock market has returned 8%. And there are a lot of reasons for this year's outperformance of international stocks, but the biggest probably are that many countries are choosing to invest more in their own economies and perhaps even more important, the decline of the US Dollar, which had its worst first half of the year since 1973. And a falling dollar is sort of like a tailwind to international stocks and it's nothing new for international stocks to take the lead. According to a report from Morgan Stanley, international stocks have outperformed U.S. stocks in four of the eight decades since World War II. So we're talking the 50s, 70s, 80s and the first decade of the 2000s. And during these cycles, international equities beat the U.S. by a median of 4.9% per year. All that said, last week saw a bit of a reversal of this trend. Trade deals were announced with Japan, South Korea and the EU that are generally considered favorable to America. And the US Stock market responded by having a better week than international stocks and closing near all time highs, at least as of this taping after the markets closed on Thursday, July 31. And as the stock market goes up, so does its valuation. Which brings us to the number of the week and it is 218. That is the number of work hours at the current average wage required to have enough money to purchase one unit of the S&P 500 according to the Luthold Group. So they calculated this number all the way back to 1947 and the current figure is the highest over that almost eight decade period. In other words, it takes more labor these days for the working woman or the working man to earn enough to invest in a single share of AN S&P 500 index fund. Now this may say as much about whether worker income has kept pace over the decades as it does about stock valuations. And for their calculation, leuthold used the average hourly wage of the manufacturing sector, which has grown from $1.04 in 1947 to $28.87 today. But more traditional stock market valuation measures are also at high levels. Both the trailing and forward price to earnings multiples for The S and P 500 are significantly above average. And the cyclically adjusted PE, also known as the Shiller PE after economist Robert Shiller, is now just about at a second highest level ever, with the highest being the peak of the dot com boom.
