Nominal Net Worth is Meaningless

Net worth is the value of assets such as homes, checking accounts and investments minus debts like mortgages and credit cards.

This the world according to nominal valuation. From this perspective, rising nominal net worth, assets value greater than liabilities, suggests an increased standard of living.

In my Dow 10,000 is meaningless commentary, I suggested that comparing price levels denominated in debasing (devaluing) currency is like measuring distance from a yardstick that has a quarter inch removed each year.

The same logic applies to the "valuation" of assets and liabilities such as homes, checking accounts, and debts. Net worth comparisons are meaningless unless adjusted for currency debasement. I am certain citizens of the Weimar Republic saw their paper net worth soar as their currency collapsed. Their rising net worth did little to prevent financial ruin of most if not all social classes at that time.

Rather than asking how much is my net worth, ask how much gold can your net worth buy? The answer to the later will be a better indication of your true net worth over time.

Source: news.yahoo.com