This may be where we're going wrong-- definitions. If we're using the same language then we're working together instead of quarrelling. Let's agree on definitions. I found some standard definitions at U Mich:
| Wealth | The total value of the accumulated assets owned by an individual, household, community, or country. | ||
| Asset | An item of property, such as land, capital, money, a share in ownership, or a claim on others for future payment, such as a bond or a bank deposit. | ||
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1. The plant and equipment used in production. 2. One of the main primary factors, the availability of which contributes to the productivity of labor, comparative advantage, and the pattern of international trade. 3. A stock of financial assets. |
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| Bond | A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility. |
We don't have to use these definitions -- if you want we can go off to stuff like "true wealth is the spiritual" or something. I'm happy either way. Your call.
The definition of Walth is anything but standard. And any definition which includes assets with associated liabilities and/or debt greater than the value of the asset is quite useless. Here's some of the definitions found at various universities:
While the dictionary definition of wealth is connected with affluence—having an abundance of money, Schuchardt says wealth is “about having enough money to be financially secure. The concept of financial security means you are first, financially independent, or out on your own; then financially stable, or able to meet day-to-day expenses; and finally, able to save, invest, and control debt in order to reach future goals that take money to buy, such as a home, a college education and a comfortable retirement.” Schuchardt, a former senior fellow with the National Endowment for Financial Education, suggests these simple tactics:
http://www.utah.edu/unews/releases/04/mar/wealth.html
Our definition of wealth includes business assets and non-residential properties. We are interested in looking at the assets of these households that can be expected to generate a stream of income that can be used to finance consumption during retirement.
http://siepr.stanford.edu/papers/pdf/03-10.pdf
Program, we assume that utility is a function of wealth, that utility always increases with wealth, but that the marginal utility of wealth decreases as wealth increases. The goal of the consumer is to maximize
expected lifetime utility. Utility is assumed to be a function of wealth. The definition of wealth can be a sticky issue, but initially we can think of a retired person whose only source of income is perfectly liquid,
perfectly safe financial assets
.
Relative Risk Aversion
Utility functions can be characterized in terms of relative risk aversion, which is the same as the wealth elasticity of the marginal utility of wealth (Blume & Friend 1975). Relative risk aversion can be plausibly
assumed to be constant for any person over usual ranges of wealth. Kimball (1988) has provided a nice intuitive illustration of the concept of relative risk aversion, appropriate for utility functions with constant
relative risk aversion.
http://hec.osu.edu/people/shanna/741/hannaSunposterhandout.pdf
A. Definitions of wealth, expected returns and unexpected capital gains:
Given the definition of wealth in (1), the expected total return can be written in terms of yield and expected capital gain:
http://www.amherst.edu/~grwoglom/EndowmentSpendingRev.doc