On the Cash: Can You Have Too A lot Cash? Brian Portnoy, Shaping Wealth (September 18, 2024)
Can cash purchase you happiness? How a lot cash is an excessive amount of? Does wealth provide diminishing returns? On this version of On the Cash, I sit down with Brian Portnoy to discover these questions.
Full transcript beneath.
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About this week’s visitor:
Brian Portnoy is founder and CEO of Shaping Wealth, which helps advisors and their purchasers to realize “funded contentment,” and operates as an outsourced Chief Behavioral Officer. Portnoy has held senior funding roles all through the hedge fund and mutual fund industries.
For more information, see:
Shaping Wealth Bio
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Discover all the earlier On the Cash episodes within the MiB feed on Apple Podcasts, YouTube, Spotify, and Bloomberg.
Transcript
[Music: Because I’m happy. Clap along if you feel like a room without a roof, Because I’m happy, Clap along if you feel like happiness is the truth, Because I’m happy]
Barry Ritholtz: Cash doesn’t robotically result in happiness. Our relationship with cash is difficult: Converse to somebody on the backside of the financial ladder and they’ll let you know in no unsure phrases {that a} lack of cash can result in distress; however converse to sufficient millionaires and billionaires and it’s fairly clear that cash doesn’t robotically result in happiness.
Because it seems, Cash buys you just a little little bit of happiness, however solely up to some extent. On at the moment’s version of on the cash, we’re going to debate how and why cash should purchase you happiness.
To assist us unpack all of this and what it means in your monetary well being, let’s herald Brian Portnoy. He’s the writer of “The Geometry of Wealth: Tips on how to Form a Lifetime of Cash and That means.”
We’ll begin with a straightforward sufficient query does cash purchase happiness?
Brian Portnoy: Let me provide you with a quite simple clear reply sure no possibly form of probably not sort of
Barry Ritholtz: OK, I get that. So that you’re saying it’s difficult and it actually will depend on plenty of plenty of elements let’s begin actually fundamental with Maslow’s hierarchy of wants: Security, safety, meals, shelter, et cetera. Clearly for those who don’t have these issues lack of cash is definitely going to deliver distress
Brian Portnoy: In order that’s precisely the suitable place to begin let’s speak concerning the elimination of distress as distinct from the achievement of happiness there’s little question that cash’s strongest influence on our emotional lives our bodily lives is the elimination of distress so we’re constructed to to outlive that’s our evolutionary story and cash buys us shelter it buys us meals it buys us heat it buys us security at the next degree it could permit us to afford eliminating aggravation or sure folks you don’t wish to see or sure commutes you don’t wish to make we will consider cash as a solution to mitigate and even eradicate unhappiness disappointment and distress that’s by far probably the most highly effective relationship between cash and a specific emotional state
Barry Ritholtz: So I’ve seen a few research that have a look at the place does cash cease shopping for contentment so to talk and I I do know these are all from completely different eras and they also might not be inflation adjusted numbers however one research says it peaks round 70K after which begins to roll off that looks as if in America that buys you shelter meals clothes well being care and possibly even some schooling then I’ve seen 300,000 and 500,000 the place does the marginal utility of every earned greenback actually start to matter much less and fewer?
Brian Portnoy: So that you’ve pointed precisely to a lot of research on this and possibly it’s 75,000 or 90,000 I’d additionally level out {that a} greenback spent in Manhattan NY versus Manhattan KS these are very completely different conversations.
Let me intervene first although and say there’s two completely different definitions of happiness that we must always be certain are clear one is form of simply the day-to-day: Good temper, dangerous temper having you recognize optimistic feelings. The opposite form of happiness going again to Aristotle what he referred to as “Eudemonia” is a deeper supply of that means and contentment because it pertains to the primary definition of happiness you’re right there’s been research after research that reveals that when you may afford the fundamentals in life having that marginal greenback isn’t essentially going to place you in an excellent temper or a nasty temper you’re form of wired with a sure you recognize disposition and for those who’re a usually cheerful particular person you’re going to be that method and for those who’re usually sort of dower or depressing properly making a whole lot of hundreds of {dollars} a yr aren’t going to make an influence.
I’d go to the second definition of what we name happiness it’s a it’s a troublesome phrase you go to the thesaurus there’s thirty completely different phrases for this factor however we’re going to speak about day-to-day happiness versus “Contentment” what Aristotle referred to as “Eudaimonia” and there’s some fascinating analysis from Danny Kahneman and Angus Deaton that reveals that if spent correctly, cash can underwrite a significant life, and there are completely different sources of that means in our lives. When spent correctly on sure forms of experiences and relationships cash can very a lot be used successfully to steer a happier, higher life
Barry Ritholtz: Let’s speak just a little bit about different folks there’s a well-known HL Mencken quote was as soon as they requested how do you outline wealth and his reply was $100 greater than my brother-in-law. There’s different research which have requested folks would you slightly I’m making up these numbers however they’re ballpark $60,000 whenever you reside in a city when everyone else has $50,000 or would you favor $200,000 in a city the place everyone else has $300,000. I do know what I might select I might take the latter however that doesn’t appear to be the reply that most individuals give. They are saying properly I’d slightly be the wealthiest man on the town at 60K than the poorest man on the town, at 100K. Why is that? Clarify why that conduct and perception system exist and what does that imply for our satisfaction
Brian Portnoy: Welcome to the human situation. Welcome to the evolutionary path that we’ve been on. Standing issues, tribe issues, and these aren’t trivial issues these are deep down genetic codes that all of us reside with and so when now we have just a little bit greater than others we really feel higher than ourselves and so that you’re completely proper the research do present and I don’t have the precise numbers that folks would slightly have $100,000 earnings when others are making $80k versus $150,000 earnings when others are making $200,000 a yr.
You and I’d say properly I’d choose one versus the opposite, however the reality is that the preponderance of responses replicate the truth that we wish to really feel linked to our tribe and secure in our tribe and when you’ve just a little bit greater than others it could make you are feeling fairly good go quote for quote you gave me H.L. Menken I’ll provide the unique JP Morgan he mentioned nothing corrupts your monetary judgment greater than the sight of your neighbor getting wealthy
Barry Ritholtz: I’ve a really vivid recollection in within the early days of home flipping within the 2000s main as much as the GFC, and within the early days of crypto. I can’t let you know how usually I’ve heard folks say “My neighbor is making all this cash and that man’s a moron,” it’s nearly as if it’s insult to harm — what’s it about seeing someone else make some huge cash that will get our envy and greed buttons operating?
Brian Portnoy: I don’t know whether or not to cite neuroscience or the Bible [Go both ways, I bet they’re related]. They’re, they’re. You converse to sort of who we’re as a human species – there there’s no getting round the truth that we really feel envy or greed when others have extra. I don’t know if we have to present a dissertation or Bible quotes to point out why that’s true; we simply know that when others are getting forward, we really feel like we’re falling behind.
It’s actually essential from a monetary well-being perspective for folks to have their very own particular person genuine targets hopefully baked into some type of a monetary plan. So you are feeling such as you’re making progress towards the issues that you simply’ve mentioned matter to you and your family members. That can be utilized to mitigate a few of these unfavorable emotional impacts, when it’s identical to, I’m on the on line casino I guess on black he guess on pink he gained he’s wealthy I’m not and also you don’t really feel excellent about your self.
That that’s not an effective way to work your method by way of your monetary life
Barry Ritholtz: So let’s tie this collectively given the distinction between the pursuit of happiness and the pursuit of contentment what does this imply for a way buyers ought to take into consideration pursuing good points of their portfolios.
Brian Portnoy: Investing outdoors of a well-defined monetary plan is theory. And that may not essentially be a nasty factor you recognize you want to choose shares not anymore I began started on a buying and selling desk however look I take round with market timing is what I do however that’s simply outdoors {of professional} that’s simply in my very own little silly yeah you may’t private account OK so I’ll begin and by the way in which that that 2% of my belongings scratches such an itch. I can’t start to let you know yeah that’s why we advise advisors to at all times permit some purchasers to have cowboy accounts completely you We’ll handle 97% of your belongings 3% go wild purchase crypto all these items and
Barry Ritholtz: One of many humorous issues are is with these form of accounts is that if they go to zero who cares with 2% of your belongings and in the event that they triple hey they tripled as a result of it was 2% if it was truly all of your cash you’d by no means have been in a position to maintain on that lengthy. [that’s right] You’d have taken Oh my God I’m up 30% I gotta take some earnings.
Brian Portnoy: And by the way in which there’s nothing incorrect with being within the inventory or bond market or in crypto or in some other market and seeing for those who can ship deliver your perception into choosing higher securities or higher outcomes.
Nevertheless if we’re actually serious about the connection between cash and happiness when you’ve a properly outlined plan it signifies that you’re heading in direction of one thing it may very well be your children faculty schooling it may very well be a snug
It may very well be a snug retirement, it may very well be a specific trip that you’ve got in thoughts, so that you choose your objective and also you make investments accordingly. You construct a portfolio, you’ve time horizons, you’ve danger tolerance, it’s not as attractive or as provocative as enjoying the markets so to talk however the dialog about cash and happiness truly makes much more sense within the context of getting properly outlined targets and the opposite stuff is sort of enjoyable however simply let’s name it what it’s, it’s not investing it’s speculating.
Brian Portnoy: Thanks Brian, that’s actually fascinating. You already know this concept of cash shopping for happiness comes up on a regular basis it comes up in conversations with purchasers and family and friends.
I at all times prefer to level to the instance of the reverse of cash resulting in satisfaction and contentment – one thing I name purposeless capital. Invoice Huang ran the hedge fund Archegos Capital Administration they usually very famously ran up a stake of a billion {dollars} utilizing leverage and really aggressive buying and selling as much as $20 billion earlier than they finally simply blew up. I at all times suspected a part of the explanation that occurred was as a result of this was “Purposeless Capital” – there was no intent behind it, there was no plan to satisfy sure life targets or give cash to philanthropy, construct experiences with the household. It was simply extra for the sake of extra.
As we’ve discovered over time, extra money doesn’t at all times purchase happiness, but when used proper it may purchase experiences you may assist others and it could deliver a lifetime of funded contentment if utilized appropriately
