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 under.
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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 attain “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:
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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 routinely result in happiness. Our relationship with cash is difficult: Converse to somebody on the backside of the financial ladder and they’re going to let you know in no unsure phrases {that a} lack of cash can result in distress; however communicate to sufficient millionaires and billionaires and it’s fairly clear that cash doesn’t routinely result in happiness.
Because it seems, Cash buys you a little bit little bit of happiness, however solely up to a degree. On at the moment’s version of on the cash, we’re going to debate how and why cash can 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 creator of “The Geometry of Wealth: The right way to Form a Lifetime of Cash and Which means.”
We’ll begin with a simple sufficient query does cash purchase happiness?
Brian Portnoy: Let me provide you with a quite simple clear reply sure no perhaps kind of probably not type of
Barry Ritholtz: OK, I get that. So that you’re saying it’s difficult and it actually is dependent upon a whole lot of a whole lot of components let’s begin actually fundamental with Maslow’s hierarchy of wants: Security, safety, meals, shelter, et cetera. Clearly in case you don’t have these issues lack of cash is actually going to deliver distress
Brian Portnoy: In order that’s precisely the suitable place to start out let’s speak concerning the elimination of distress as distinct from the achievement of happiness there’s little doubt 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 will probably enable 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 remove unhappiness disappointment and distress that’s by far probably the most highly effective relationship between cash and a selected 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 will not be inflation adjusted numbers however one examine 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 perhaps even some training 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 variety of research on this and perhaps 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 make certain are clear one is kind of simply the day-to-day: Good temper, unhealthy temper having you recognize constructive feelings. The opposite kind 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 might be appropriate there’s been examine after examine that exhibits that after you may afford the fundamentals in life having that marginal greenback isn’t essentially going to place you in a great temper or a foul temper you’re kind of wired with a sure you recognize disposition and in case you’re a usually cheerful particular person you’re going to be that approach and in case you’re usually type of dower or depressing properly making lots of of hundreds of {dollars} a 12 months 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 tough 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 exhibits that if spent properly, cash can underwrite a significant life, and there are completely different sources of that means in our lives. When spent properly on sure varieties of experiences and relationships cash can very a lot be used successfully to guide a happier, higher life
Barry Ritholtz: Let’s speak a little bit 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 moderately I’m making up these numbers however they’re ballpark $60,000 if you stay in a city when everyone else has $50,000 or would you like $200,000 in a city the place everyone else has $300,000. I do know what I’d select I’d take the latter however that doesn’t appear to be the reply that most individuals give. They are saying properly I’d moderately 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 stay with and so when we have now a little bit 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 individuals would moderately have $100,000 revenue when others are making $80k versus $150,000 revenue when others are making $200,000 a 12 months.
You and I would say properly I’d choose one versus the opposite, however the truth 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 might have a little bit bit greater than others it will probably 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 damage — what’s it about seeing anyone else make some huge cash that will get our envy and greed buttons working?
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 communicate to type 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 standpoint 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 adverse emotional impacts, when it’s identical to, I’m on the on line casino I guess on black he guess on crimson he received he’s wealthy I’m not and also you don’t really feel excellent about your self.
That that’s not a good way to work your approach via 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 traders ought to take into consideration pursuing beneficial properties of their portfolios.
Brian Portnoy: Investing exterior of a well-defined monetary plan is concept. And which may not essentially be a foul 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 exterior {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 enable some purchasers to have cowboy accounts completely you We’ll handle 97% of your belongings 3% go wild purchase crypto all these things and
Barry Ritholtz: One of many humorous issues are is with these kind 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’ll 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 improper with being within the inventory or bond market or in crypto or in some other market and seeing in case you can ship deliver your perception into selecting higher securities or higher outcomes.
Nevertheless if we’re actually fascinated with the connection between cash and happiness when you might have a properly outlined plan it implies that you’re heading in the direction of one thing it could possibly be your children faculty training it could possibly be a snug
It could possibly be a snug retirement, it could possibly be a selected trip that you’ve in thoughts, so that you choose your objective and also you make investments accordingly. You construct a portfolio, you might have time horizons, you might have threat tolerance, it’s not as attractive or as provocative as taking part in 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 type 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 wish 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 rationale 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 will probably deliver a lifetime of funded contentment if utilized accurately
