Latest / Masters in Business / At the Money: How Much Money Is Too Much?

Transcript

At the Money: How Much Money Is Too Much? · Masters in Business

• 0:00
  Speaker 1: I'm Barry Ridults and I'm excited to tell you about
• 0:02
  Speaker 1: my new podcast, At the Money. Each week, I'm going
• 0:06
  Speaker 1: to spend about ten minutes or so diving deep into
• 0:09
  Speaker 1: a specific topic that affects you and your money, acquiring it,
• 0:14
  Speaker 1: spending it, and most of all investing it. Strap in
• 0:18
  Speaker 1: for At the Money starting right now, because if you fail,
• 0:28
  Speaker 1: money doesn't automatically lead to happiness. Our relationship with money
• 0:34
  Speaker 1: is complicated. Speak to someone at the bottom of the
• 0:37
  Speaker 1: economic ladder and they will tell you in no uncertain
• 0:40
  Speaker 1: terms that a lack of money can lead to misery.
• 0:44
  Speaker 1: But speak to enough millionaires and billionaires, and it's pretty
• 0:48
  Speaker 1: clear that money doesn't automatically lead to happiness. As it
• 0:53
  Speaker 1: turns out, money buys you a little bit of happiness,
• 0:57
  Speaker 1: but only up to a point. And on today's edition
• 1:00
  Speaker 1: About the Money, we're going to discuss how and why
• 1:04
  Speaker 1: money can buy you happiness. To help us unpack all
• 1:07
  Speaker 1: of this and what it means for your financial health,
• 1:10
  Speaker 1: let's bring in Brian Portnoy. He is the author of
• 1:14
  Speaker 1: the Geometry of Wealth, How to Shape a Life of
• 1:17
  Speaker 1: Money and Meaning. Okay, we'll start with an easy enough question,
• 1:21
  Speaker 1: does money buy happiness.
• 1:23
  Speaker 2: Let me give you a very simple, clear answer. Yes, no, maybe,
• 1:29
  Speaker 2: sort of not really.
• 1:30
  Speaker 1: Kind of Okay, I get that. So you're saying it's complicated,
• 1:36
  Speaker 1: and it really depends on a lot of a lot
• 1:38
  Speaker 1: of factors. Let's start really basic with Maslow's hierarchy of
• 1:43
  Speaker 1: needs safety, security, food, shelter, et cetera. Obviously, if you
• 1:48
  Speaker 1: don't have those things, lack of money is certainly going
• 1:51
  Speaker 1: to bring misery.
• 1:53
  Speaker 2: So that's exactly the right place to start. Let's talk
• 1:57
  Speaker 2: about the elimination of misery as distinct from the achievement
• 2:02
  Speaker 2: of happiness. There's no doubt that money's most powerful impact
• 2:07
  Speaker 2: on our emotional lives our physical lives is the elimination
• 2:11
  Speaker 2: of misery. So we're built to survive. That's our evolutionary story.
• 2:17
  Speaker 2: And money buys us shelter, it buys us food, it
• 2:20
  Speaker 2: buys us warmth, it buys us safety. At a higher level,
• 2:24
  Speaker 2: it can allow us to afford getting rid of aggravation
• 2:28
  Speaker 2: or certain people you don't want to see, or certain
• 2:31
  Speaker 2: commutes you don't want to make. We can think of
• 2:33
  Speaker 2: money as a way to mitigate or even eliminate sadness, disappointment,
• 2:38
  Speaker 2: and misery. That is by far the most powerful relationship
• 2:43
  Speaker 2: between money and a particular emotional state.
• 2:45
  Speaker 1: So I've seen a couple of studies that look at
• 2:48
  Speaker 1: where does money stop buying contentment, so to speak. And
• 2:53
  Speaker 1: I know these are all from different eras and so
• 2:56
  Speaker 1: they may not be inflation adjusted numbers. But one study
• 3:00
  Speaker 1: says it peaks around seventy k and then starts to
• 3:03
  Speaker 1: roll off. That seems like in America, that buys you shelter, food, clothing, healthcare,
• 3:08
  Speaker 1: and maybe even some education. Then I've seen three hundred
• 3:12
  Speaker 1: thousand and five hundred thousand where does the marginal utility
• 3:16
  Speaker 1: of each earned dollar really begin to matter less and less?
• 3:21
  Speaker 2: So you've pointed accurately to a number of studies on this,
• 3:24
  Speaker 2: and maybe it's seventy five thousand or ninety thousand. I'd
• 3:27
  Speaker 2: also point out that a dollar spent in Manhattan, New
• 3:30
  Speaker 2: York versus Manhattan, Kansas. Those are very different conversations. Let
• 3:34
  Speaker 2: me intervene first, though, and say there's two different definitions
• 3:38
  Speaker 2: of happiness that we should make sure are clear. One
• 3:41
  Speaker 2: is sort of just the day today, good mood, bad mood,
• 3:45
  Speaker 2: having positive emotions. The other sort of happiness, going back
• 3:49
  Speaker 2: to Aristotle, what he called you a ammonia is a deeper
• 3:52
  Speaker 2: source of meaning and contentment as it relates to the
• 3:56
  Speaker 2: first definition of happiness. You are correct. There's been study
• 4:00
  Speaker 2: after study that shows that once you can afford the
• 4:04
  Speaker 2: basics in life, having that marginal dollar isn't necessarily going
• 4:08
  Speaker 2: to put you in a good mood or a bad mood.
• 4:10
  Speaker 2: You're sort of wired with a certain disposition, and if
• 4:13
  Speaker 2: you're a generally cheerful person, you're going to be that way.
• 4:16
  Speaker 2: And if you're generally kind of dour or miserable while
• 4:20
  Speaker 2: making hundreds of thousands of dollars a year aren't going
• 4:23
  Speaker 2: to make an impact. I'd go to the second definition
• 4:27
  Speaker 2: of what we call happiness. It's a difficult word. You
• 4:30
  Speaker 2: go to the sourus. There's thirty different words for this thing.
• 4:33
  Speaker 2: But we're going to talk about day to day happiness
• 4:36
  Speaker 2: versus contentment what Aristotle called you'd ammonia. And there's some
• 4:42
  Speaker 2: interesting research from Danny Kahneman and Angus Deaton that shows
• 4:46
  Speaker 2: that if spent wisely, money can underwrite a meaningful life.
• 4:51
  Speaker 2: And there are different sources of meaning in our lives
• 4:54
  Speaker 2: when spent wisely on certain types of experiences and relationships.
• 4:59
  Speaker 2: Money can very much be used effectively to lead a happier,
• 5:04
  Speaker 2: better life.
• 5:04
  Speaker 1: So let's talk a little bit about other people. There's
• 5:08
  Speaker 1: a famous ahl Menken quote was once they asked how
• 5:12
  Speaker 1: do you define wealth? And his answer was one hundred
• 5:16
  Speaker 1: dollars more than my brother in law. There's other studies
• 5:19
  Speaker 1: that have asked people, would you rather have making up
• 5:23
  Speaker 1: these numbers but their bullpark sixty thousand dollars when you
• 5:27
  Speaker 1: live in a town when everybody else has fifty thousand dollars?
• 5:31
  Speaker 1: Or would you prefer two hundred thousand dollars in a
• 5:34
  Speaker 1: town where everybody else has three hundred thousand? I know
• 5:38
  Speaker 1: what I would choose. I would take the latter. But
• 5:41
  Speaker 1: that doesn't seem to be the answer that most people give.
• 5:44
  Speaker 1: They say, well, I'd rather be the wealthiest guy in
• 5:46
  Speaker 1: town at sixty K than the poorest guy in town
• 5:50
  Speaker 1: at one hundred K. Why is that? Explain why that
• 5:55
  Speaker 1: behavior and belief system exists, and what does that mean
• 5:58
  Speaker 1: for our satisfaction.
• 6:00
  Speaker 2: Welcome to the human condition, Welcome to the evolutionary path
• 6:04
  Speaker 2: that we've been on. Status matters, tribe matters, and these
• 6:09
  Speaker 2: aren't trivial things. These are deep down genetic codes that
• 6:13
  Speaker 2: we all live with, and so when we have a
• 6:16
  Speaker 2: little bit more than others, we feel better than ourselves.
• 6:19
  Speaker 2: And so you're absolutely right. The studies do show, and
• 6:21
  Speaker 2: I don't have the exact numbers, but people would rather
• 6:24
  Speaker 2: have one hundred thousand dollars income when others are making
• 6:27
  Speaker 2: eighty versus one hundred and fifty thousand dollars income when
• 6:30
  Speaker 2: others are making two hundred thousand dollars a year. You
• 6:33
  Speaker 2: and I might say, well, I'd prefer one versus the other.
• 6:36
  Speaker 2: But the fact is that the preponderance of responses reflect
• 6:40
  Speaker 2: the fact that we want to feel connected to our
• 6:43
  Speaker 2: tribe and safe in our tribe. And when you have
• 6:46
  Speaker 2: a little bit more than others, it can make you
• 6:50
  Speaker 2: feel pretty good. Go quote for quote. You gave me,
• 6:53
  Speaker 2: H'll make and I'll give you the original, JP Morgan.
• 6:56
  Speaker 2: He said, nothing corrupts your financial judgment more than the
• 6:59
  Speaker 2: sight of your name getting.
• 7:00
  Speaker 1: Rich, especially if your neighbor's an idiot, all if.
• 7:03
  Speaker 2: Your neighbors JP Morgan.
• 7:05
  Speaker 1: I have a very vivid recollection in the early days
• 7:09
  Speaker 1: of house flipping in the two thousands leading up to that,
• 7:13
  Speaker 1: and the early days of crypto, I can't tell you
• 7:16
  Speaker 1: how often I've heard people say my neighbor is making
• 7:20
  Speaker 1: all this money and that guy's are moron. It's almost
• 7:24
  Speaker 1: as if it's insult to injury. What is it about
• 7:27
  Speaker 1: seeing somebody else make a lot of money that gets
• 7:30
  Speaker 1: our envy and greed? Buttons ranging.
• 7:33
  Speaker 2: Yeah, So I don't know whether to quote neuroscience or
• 7:35
  Speaker 2: the Bible go both ways, because I bet they're related.
• 7:40
  Speaker 2: They are they are, you know, they both speak to
• 7:43
  Speaker 2: kind of who we are as a human species. There's
• 7:46
  Speaker 2: no getting around the fact that we feel envy or
• 7:49
  Speaker 2: greed when others have more. I mean, I don't know
• 7:53
  Speaker 2: if we need to provide a dissertation or Bible quotes
• 7:56
  Speaker 2: to show why that's true. We just know that when
• 8:00
  Speaker 2: others are getting ahead, we feel like we're falling behind.
• 8:04
  Speaker 2: It's really important from a financial wellbeing point of view
• 8:07
  Speaker 2: for people to have their own individual, authentic goals, hopefully
• 8:11
  Speaker 2: baked into some form of a financial plan, so that
• 8:15
  Speaker 2: you feel like you're making progress toward the things that
• 8:17
  Speaker 2: you've said matter to you and your loved ones. That
• 8:20
  Speaker 2: can be used to mitigate some of these negative emotional
• 8:23
  Speaker 2: impacts when it's just like, oh, I'm at the casino.
• 8:27
  Speaker 2: I bet on black, he bet on red. He one
• 8:31
  Speaker 2: he's rich. I'm not. And you don't feel very good
• 8:33
  Speaker 2: about yourself. That's not a great way to work your
• 8:36
  Speaker 2: way through your financial life.
• 8:38
  Speaker 1: So let's tie this together. Given the difference between the
• 8:42
  Speaker 1: pursuit of happiness and the pursuit of contentment, what does
• 8:46
  Speaker 1: this mean for how investors should think about pursuing gains
• 8:50
  Speaker 1: in their portfolios.
• 8:52
  Speaker 2: Investing outside of a well defined financial plan is speculation,
• 8:57
  Speaker 2: and that might not necessarily be a bad thing. You know,
• 9:00
  Speaker 2: you like to pick stocks.
• 9:02
  Speaker 1: I don't not anymore. I started began on a trading desk. Look,
• 9:06
  Speaker 1: I taken around with market timing, is what I do.
• 9:09
  Speaker 1: But that's just outside of professional that's just in my
• 9:12
  Speaker 1: own little, stupid uh yeah, personal account.
• 9:15
  Speaker 2: Okay.
• 9:16
  Speaker 1: So and by the way, that that two percent of
• 9:19
  Speaker 1: my assets scratches such an itch, I can't begin to
• 9:23
  Speaker 1: tell you.
• 9:23
  Speaker 2: Yeah, that's why we advise advisors to, oh, allow some
• 9:27
  Speaker 2: clients to have cowboy accounts. Yeah, absolutely, you will manage
• 9:30
  Speaker 2: ninety seven percent of your assets three percent go wild
• 9:33
  Speaker 2: by crypto all this stuff.
• 9:35
  Speaker 1: And one of the funny things are is with those
• 9:37
  Speaker 1: sort of accounts is if they go to zero, who cares?
• 9:40
  Speaker 1: Was two percent of your assets? And if they triple, Hey,
• 9:44
  Speaker 1: they tripled because it was two percent. If it was
• 9:47
  Speaker 1: actually all your money, you would never have been able
• 9:49
  Speaker 1: to hold on that long. That's right, you would have
• 9:51
  Speaker 1: taken Oh my god, I'm up thirty percent. Got I
• 9:53
  Speaker 1: gotta take some profits.
• 9:54
  Speaker 2: And by the way, there's nothing wrong with being interested
• 9:57
  Speaker 2: in the stock or bond market, or in crypto or
• 10:00
  Speaker 2: in any other market and seeing if you can deliver.
• 10:04
  Speaker 2: Bring your insight into picking better securities or better outcomes. However,
• 10:11
  Speaker 2: if we're really thinking about the relationship between money and happiness,
• 10:15
  Speaker 2: when you have a well defined plan, it means that
• 10:18
  Speaker 2: you're heading towards something. It could be your kid's college education,
• 10:21
  Speaker 2: it could be a comfortable retirement, it could be a
• 10:25
  Speaker 2: particular vacation that you have in mind. So you pick
• 10:30
  Speaker 2: your goal and you invest accordingly. You build a portfolio,
• 10:35
  Speaker 2: you have time horizons, you have risk tolerance. It's not
• 10:38
  Speaker 2: as sexy or as provocative as playing the markets, so
• 10:44
  Speaker 2: to speak, But the conversation about money and happiness actually
• 10:48
  Speaker 2: makes a lot more sense in the context of having
• 10:51
  Speaker 2: well defined goals and the other stuff it's kind of fun.
• 10:55
  Speaker 2: But just let's call it what it is. It's not investing,
• 10:58
  Speaker 2: it's speculating.
• 10:59
  Speaker 1: Thanks Brian, that's really interesting. You know, this idea of
• 11:03
  Speaker 1: money buying happiness comes up all the time. It comes
• 11:06
  Speaker 1: up in conversations with clients and friends and family, and
• 11:09
  Speaker 1: I always like to point to the example of the
• 11:14
  Speaker 1: opposite of money leading to satisfaction and contentment, something I
• 11:19
  Speaker 1: call purposeless capital. Bill Hwang ran the hedge fund Archi
• 11:24
  Speaker 1: Ghost Capital Management, and they very famously ran up a
• 11:28
  Speaker 1: stake of a few billion dollars using leverage and very
• 11:32
  Speaker 1: aggressive trading up to twenty billion dollars before they ultimately
• 11:37
  Speaker 1: just blew up. And I always suspected part of the
• 11:40
  Speaker 1: reason that happened was because this was purposeless capital. There
• 11:45
  Speaker 1: was no intent behind it. There was no plan to
• 11:49
  Speaker 1: meet certain life goals, give money to philanthropy, build experiences
• 11:54
  Speaker 1: with the family. It was just more for the sake
• 11:57
  Speaker 1: of more. And as we've learned over time, sure money
• 12:01
  Speaker 1: doesn't always buy happiness, but if used right, it could
• 12:05
  Speaker 1: buy experiences, You can help others, and it can bring
• 12:09
  Speaker 1: a life of funded contentment if applied correctly. You can
• 12:17
  Speaker 1: listen to at the Money every week. Find it in
• 12:20
  Speaker 1: our masters and business feed at Bloomberg dot com, Apple Podcasts,
• 12:24
  Speaker 1: and Spotify. Each week, we'll be here to discuss the
• 12:27
  Speaker 1: issues that matter most to you as an investor. I'm
• 12:31
  Speaker 1: Barry Riddholts. You've been listening to Add the Money on
• 12:34
  Speaker 1: Bloomberg Radio.