Net Worth Angst? Beware of This Bias

I love Rockstar Finance (RF).  It is my ‘go to’ resource to see what’s happening in the personal finance blogging world.  I have had the privilege of having a number of my articles featured in RF and enjoyed the warm blanket feeling of seeing thousands of visitors on my site on the day I am rockstar’ed

RF has several useful initiatives to support the blogging community and the eager ‘consumers’ of financial knowledge.  I am sure ESI Money, who recently bought the RF website, will continue on the impressive progress made by J$ of Budgets Are Sexy.

Among their initiatives, perhaps the most eye-catching one is Rockstar Finance net worth tracker.  This directory lists over 501 bloggers who share their net worth openly.  I am currently rated #8 on that list.  I was rated #7 up until last month when an update by Mr. Tako put him ahead of me. 

I don’t track net worth frequently or even so accurately (as I deliberately under-value some assets to be conservative).  If I did, I would have moved up further in this ranking. 

That’s precisely the subject of this article.   The point is….it’s largely pointless!

With 501 trackers reporting a total of $262.5 million in net worth, it is hard not to get impressed.  We are talking an average of over $500,000 here, amidst a median age range in the 30’s among all bloggers.  

This kind of net worth is such an outlier compared to the world and even the affluent North American societies that it’s not even funny.  We often forget how rare this is.

Having a net worth of $500,000 for a mid-30’s household would put you among the top slice of North America, and in even more exclusive company in the rest of the world.  I won’t bore you with details for these, because there are plenty of sources that you can Google yourself. 

Instead, allow me to attach a chart (source) using the data from Federal Reserve (the grand-daddy of financial data collectors in the U.S.).

Did you notice the huge difference between ‘median’ and ‘average’ net worth in every age group?  Median is the true middle-point, and the average is skewed by the very rich people at the top end of each age group.   The table below shows how big this skewing effect is.

The median early 30’s household has a net worth of only $29,125, whereas the average in that age group is at $95,235, that is 230% higher!

Similarly, the 35-39 age group household has a median net worth of $40,666 but the average for that same age group is $257,581 or a massive 533% higher!

The top 1% or the top 10% of every age group often creates a wide gap between median and average

For more proof, read the latest report from Oxfam.  Their report is a key topic of discussion at the World Economic Forum where elite business and political leaders meet in Davos, Switzerland. 

Oxfam got tired of repeating the warnings about wealth disparity in the world.  They quit the subtle tactics this time and went straight with the title “Reward Work, Not Wealth“.   Some of the stories in their report are heart-rending.  What else can a reputed NGO do, when they face statistics like just 1% of the people captured 82% of all the wealth created in the past year! 

The rich get richer, and skew the average further away from the median.

The point of all this is….there is a massive selection bias in the Rockstar Finance net worth directory.  This bias can make rare things appear average.  

Don’t let the word ‘bias’ throw you – I am using it in the context of psychology where it is merely a condition, often unintended.   To understand this better, consider:

a) How many people in the 30’s-50’s age group would start a blog on any topic?  

Perhaps 1 in 100,000.   

b) How many of those blogs would be on personal finance with the objective to reach financial independence/early retirement (FIRE)?

Perhaps 1 in 50.  This is actually generous, I gave the benefit of doubt towards personal finance because of my own confirmation bias.

c) How many of those PF blogs are focused on improving their net worth, and believe in sharing the numbers for the world to see?   These are the bloggers whose net worth RF tracks.

Perhaps 1 in 25.   

d)  How many of those in c) have a net worth of $500,000 or above?

For this, the directory itself is a source of data.  The $500K net worth line is currently at #167 – Dr. John Loftus @ The Fulsome Fiddler (awesome blog title, btw).

167The Fulsome Fiddler50sMaking Money$500,000.00

That’s 167 out of 501 data points, so the odds to make it to the average net worth even within the directory are about 1 out of 3.

The median in this list is, by definition, at the middle, so at #250 of the 501 people listed.   That is Chris Ball, with a net worth of $250,000.

#250Build Financial Muscle40sGeneral Finance$250,000.00

If you calculate the ratio of average net worth to median net worth in RF tracker, it is only 2 ($500,000/$250,000).  In other words, the average is just 100% higher than the median.  This is vastly lower than the numbers we saw in Federal Reserve data above, showing the average net worth being as much as 533% higher than the median in the 30’s age group!

This shows that there is a ‘closeness’ among the financial achievements of self-selected members in a directory like this.   This is another proof of the selection bias.   

Do you still wonder if the RF Net Worth directory is representative of the top 1% of North American society for those average age cohorts?   

Let’s see the math.  We multiply the odds from the selections in a) to d).   It’s that simple.

1/100,000  x 1/50 x 1/25 x 1/3 = That works to one out of 375,000,000 (or 0.00000027%).   

So, Dr. John Loftus is among the rare 0.00000027% in the world and yet, he only has an “average” net worth as per the RF Net Worth Tracker.   Yeah, way to feel bummed, right?

Where am I going with this?

Every person is a unique dish.  Together we make a great meal!

If you read my FIRE Without Smoke article, you will sense the struggle bloggers like us face to keep our messages ‘informative’ and not ‘prescriptive’.  People like us who choose to list our net worth on the RF directory unknowingly bias the list because, despite the anonymity many high net worth bloggers try to maintain, we still want the world to know the progress we have made.   

Self-selection bias happens when people who have something to show are eager to show it, inadvertently creating a skewed image of what is possible for majority.  They don’t represent the average of their age or country, which you know already, but they don’t even represent the average of similar net worth cohorts in many ways. 

There are many common character traits bloggers who feature in the directory have.  I think the valuable lesson for readers is not their net worth – but the common characteristics that all have, which led them to the self-selection bias in the first place!  

Aspiring to have a $500,000 net worth is an amazing goal to have for many people, but thinking that this is typical in the PF world (just because it is the “average” in the directory) can also be demotivating.  Moreover, it’s far from the truth as we saw above.  

So, to the readers starting out on their FI/RE journey, please ignore our net worth stats.  They should mean nothing to you.  Importantly, see if any of the sacrifices (like I outlined in my net worth post) that it took us to get there is something you can relate to.   

Also, focus on efficient investing and don’t stress about bench-marking your progress with others appearing on a list.  Any list is bound to have selection bias.  Because nobody else has your life.

If you still can’t get there, don’t worry.  Nothing is lost.  One person’s FIRE journey will be very different from another’s – it is your life goals that matter.  And remember to make your journey worth your while along the way. 

Be selective in your choices in life but consider the risk of selection bias.  Happy journey, my 10! friends!  

Does this apply to you? Share your views below.


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20 comments on “Net Worth Angst? Beware of This Bias”

  1. Pingback: My Financial Independence Journey: Monthly Update #14 (February 2018) | MoneyMow

  2. By Gasem

    I didn’t discover the FIRE community till after I retired, until after I made all the money. The way I knew I had enough was I looked at my data on the SSA website. I added up all of my Medicare earnings. I worked 49 years. I realized I wasn’t going to live another 49 years. I had more money in the bank by 25% than I had spent in the preceding 49 years despite buying a house, paying off cars sending 2 kids through college and buying them cars, travel to various world destinations, whatever arrogant bla bla bla you want. I lived through multiple recessions, lost a lot of money, goofed up on the oh so important investing style, I didn’t max out pre-retirement and more maxed out post retirement because in pre-retirement funds the Govt has their tax hooks deeply embedded in your life. I aggressively tax loss harvested to further dampen the tax blow. In the end what you keep is what the government says you keep.

    I ran the projected portfolio through 4% real growth and at age 90 I was projected to have 2x’s as much in the bank as I did the day I retired despite withdrawing that 1x’s to live on. At 2% real I will have 1x left at the end of my projected life. I include optimized tax treatment in my analysis and results including SS for both me and my wife. SS was optimized by timing for max benefits over time. I optimized my spending and purposely stress tested my spending to understand where pain and failure start. I was able to cut my spending by 35% and still live comfortably with no complaints from my wife. My SWR can easily double to meet inflation. I built in epochs where I covered my spending in the face of Roth conversion and figured out the most efficient amounts and method to Roth convert and analyzed the cost of doing that business and how long it would take to recoup that loss because of the realized future improved tax efficiency after RMD. I have planned epochs where income increases at age 68, 70, and 75 related to sequential SSA kicking in and I analyzed what happens if we get the 24% SSA haircut in 2034.

    Then I read my first fire blog and learned all about the 4.5% rule of Benin, a “number” you pull out of thin air as your retirement goal, and multiply it by 25, 30, or 33 and that’s how you figure the shootin match, with no guarantee future results may in any way match previous experience. (lemme see 45% of the people have less than 10K to “retire” on and by 2035 there will officially be more old people than young and we have 270 million to our south looking to vote themselves into a “better life”, and China and Russia are angling to create a mutual gold based reserve currency. What happens if/when the dollar gets pegged to that? Yea, we sure have faced these situations before haven’t we)

    My point is you have to understand YOUR situation and how YOUR portfolio will work in the face of probabilistic future adversity and what your going to do to mitigate the risk. You have to understand it like the back of your hand. It’s going to be your life you’re living not some other jokers FIRE fantasy Where you line up on Lists doesn’t matter. 4% Rules don’t matter. Firecalc doesn’t matter. (though you can tune Firecalc to give you some good info). Engaging the process is what matters. It just takes some work, some intuition, some honesty, some courage, some learning from your mistakes, and adequate time in the market. The trip is so interesting. You can’t get the richness by just reading the cliff’s notes (4% 25x credit card hacks bla bla).

    • By Roman

      Wow, Gasem! This is the longest comment I’ve had on my website by far. When I read the first para, I was thinking of inviting you to write a guest article, but looks like you wrote the entire comment like an article! Very valid points, Gasem. FIRE is ultimately a uniquely personal experience, and while guidelines and thumb rules may help, it would be foolish to regard them with 100% reliability. Flexibility is key.

      The span of uncertainty gets much wider for long retirement horizons, something that the 30’s FIRE crowd doesn’t dwell much on, despite staring at ~50 years of retirement. As a mid-40’s dude, I have seen personally what amazing difference staying employed for even 5 years in your peak-earning years makes for the retirement portfolio. Not to mention, the reduction of retirement horizon (from 50 years to say, 40 years or less). If there is one thing I learned in life, it is that change is constant. Hell if I know what my needs will be 5 years from now, leave alone 20 years. We can project, but cannot rely totally on the projections alone. Risk management options are critical.

      I would love to give you this platform to write a detailed article or two on topics of your interest. Please reach out to me via Contact Us page and we can take it further.

  3. By ZJ Thorne

    This is a big reason that I share my journey. Being in the negative -$140K and showing what it is like week after week as a contingent worker with student loans is vastly different from the majority of sharers. I hope that however long my journey takes, it can inspire others who are deeply in debt. I love that BAMF consistently shows the growth of his dividends, because his investment was at 10K less than 20 years ago. Those charts are the most useful to encouraging me.
    ZJ Thorne recently posted…Net Worth Week 95 – A Change Is Gonna Come EditionMy Profile

    • By TFR

      ZJ, You are an amazing woman for being so open about a lot of things. I caught up on your blog after a long while – my condolences on your dad’s passing. You were with them during his last days – that’s priceless. I also hope you get a sizable inheritance to improve your debt situation.

  4. By Jeannie

    Timely post for me to read. I was just feeling bummed and inadequate today thanks to a conversation with my mother last night. My benchmarks in real life are severely skewed too because my family and friend circles have many many very successful people so sometimes it’s hard to feel like I’m actually doing well. Thanks, I actually needed to read this today.

  5. By FullTimeFinance

    Comparison is a fact of life. It can be good or bad depending on what you make of it. Your right, the directory is not representative of the entire of blogging community let alone society. It’s still an interesting read.

    • By TFR

      True FTF. Comparison can be among peers with similar situations in life but can generate needless anxiety if against a list with strong selection bias.

  6. By R

    Good post.

    Just wish that you hadn’t mentioned the OXFAM report. I like what OXFAM does, but they’re so wrong on many things (likely due to politicization?).

    For ex, the same report that you linked above says “men are paid more for doing the same roles as women.” Really? This has been debunked so many times… and if I was a business owner and the above statement was in fact true, I’d then gain a significant competitive advantage by ONLY hiring women.

    Anyways, keep the posts coming good sir!

  7. By TT&R

    Completely agree! Even within the PF community is is easy to forget this is not “normal” and I found myself having a reality check a few times when I got stressed that we were not progressing fast enough (seriously?! It is a freaking miracle how fast we are going, comparatively to the wider).

    I particularly like your point about focusing on what people have in common, the habits, values and cost of achieving these results. And important to remember that just because some people want to retire early does not mean that you should too if that is not a personal goal!

    Ps that picture made me so hungry. I could eat Indian food day and night. In fact I am trying to convince my office to have a dosa food truck lol

    • By TFR

      Thanks TT&R. The perspective is important. And if you can convince your company have the dosa truck and invite me over, I will gladly take a flight to wherever you are!

  8. By WealthyDoc

    I agree. Good points about selection bias, comparisons, and median vs mean.
    I didn’t submit my net worth number. It would be near the top, but what’s the point? I didn’t make my money from blogging anyway. Neither did the top guy on the list.

  9. By Ty

    Another interesting point is that out of the 501 bloggers listed, only 1 is a 1-percenter. So there is a selection bias against the high end of the net worth spectrum also. 1-percenters tend not to write financial blogs. And the 1-percenter who does seems to be drumming up some clients for his business.

    • By TFR

      Agreed Ty. There is self-selection bias at the very top indeed. Either way, the list is not representative – you are making the same point from the side of rarefied top end! Since you brought up this point Ty, I wonder if you are among the top ones choosing not to include your data in the directory?

      • By Ty

        I used to blog, 13 years ago… 2 years before I early retired. Had I continued, I might have been one of the forefathers of the FI movement, lol.

        I don’t blog anymore, but if i were in the directory, I’d be at #1. 😉

        • By TFR

          Thanks Ty. Good to know your background. I am always looking to learn from folks who have done better than me. Can you send me an email (you can use the Contact page) and we can perhaps discuss offline and see how your financial learnings can benefit more? Thanks.

          • By Ty

            Unfortunately, just because I made a lot of money (by the way I definitely don’t consider myself rich, I think rich means $50 million plus in liquid assets) doesn’t mean I know anything more about finances. I read the financial mistakes other bloggers have made and I can only smile. My mistakes cost me well over a multiple of nine figures, and I don’t think there’s much to be learned from those mistakes, perhaps even less so for someone just trying to reach FIRE. Most people with FIRE in mind are consciously taking a path that prevents them from getting rich. Let me give some examples:

            If you are planning for FIRE, you don’t take big risks, you invest in index funds, you try to pay off your mortgage or you simply don’t own any property. But if you want to be rich, you have to take risks, for example investing in concentrated individual stocks, going all-in on your business, leveraging real estate.

            If you are planning for FIRE, you generally try to save your pennies. If you want to be rich, you spend money to buy time. You hire out for gardening, housework, childcare, home repair so you can spend your time making big money. You have property managers handling your rental properties even if they are taking a huge chunk of the profit. You don’t waste your time playing around with credit card offers, trying to fool yourself into saving more, or riding a bike to work. You probably don’t even know how to change your car tire never mind the engine oil.

            If you are planning for FIRE, you generally dislike your job and see it as taking time away from something you would enjoy more, which is why you want to FIRE. If you want to be rich, you love what you do more than anything else. You might even do it for free. You love to build businesses, you love to spend time researching your investments, you love developing property, you love providing solutions to people. It’s your life. You would still do it if you had billions. You would do it until your body breaks down and your memory leaves you.

            My specific mistakes: being too generous with others and parting with equity. If you want to be rich, you never part with equity. Even if it means going bankrupt. That’s why it’s so hard to get rich. And, would you rather be a nice guy or be rich? Tough choice… one that doesn’t have to made if one’s goal is to simply achieve FIRE. I gave away a lot of money and helped a lot of people, but most people won’t remember, even relatives or your closest friends at the time – does that count as a mistake?

            Anyway, most of these topics likely wouldn’t interest someone who is only interested in achieving FIRE, because the goals of FIRE are at odds with being rich.

          • By Ty

            My comment might have been clearer if I stated that I consider myself in the FIRE camp rather than the rich camp. But my net worth is higher than the typical FIREE because I went against some principles that the FIRE camp espouses, e.g. I loved my job, I invested in individual stocks, I invested in real estate, I took risks, I didn’t try to save pennies, etc. Thanks for the airspace!

          • By TFR

            Ty, Thank you for sharing your impressive story. I would love to give you a bigger platform, can you write a guest post outlining your experiences and lessons you have learned? Reach out to me via Contact page and we can discuss further on this. Thanks.

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