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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 shoppers 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:
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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 mechanically result in happiness. Our relationship with cash is sophisticated: Converse to somebody on the backside of the financial ladder and they’re going to inform you 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 mechanically result in happiness.
Because it seems, Cash buys you slightly little bit of happiness, however solely up to a degree. On as we speak’s version of on the cash, we’re going to debate how and why cash should buy you happiness.
To assist us unpack all of this and what it means on your monetary well being, let’s usher in Brian Portnoy. He’s the creator of “The Geometry of Wealth: Easy methods 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 offer you a quite simple clear reply sure no possibly type of probably not sort of
Barry Ritholtz: OK, I get that. So that you’re saying it’s sophisticated and it actually will depend on a whole lot of a whole lot of elements let’s begin actually fundamental with Maslow’s hierarchy of wants: Security, safety, meals, shelter, et cetera. Clearly if you happen to don’t have these issues lack of cash is definitely going to carry distress
Brian Portnoy: In order that’s precisely the appropriate place to begin let’s discuss in regards to the elimination of distress as distinct from the achievement of happiness there’s little question that cash’s strongest impression 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 stage it could possibly enable us to afford eliminating aggravation or sure individuals you don’t need to see or sure commutes you don’t need to make we are able to consider cash as a solution to mitigate and even eradicate disappointment 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 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 plenty 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 make sure that are clear one is type of simply the day-to-day: Good temper, unhealthy temper having you understand constructive feelings. The opposite type 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 appropriate there’s been research after research that exhibits 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 foul temper you’re type of wired with a sure you understand disposition and if you happen to’re a usually cheerful individual you’re going to be that manner and if you happen to’re usually sort of dower or depressing effectively making tons of of 1000’s of {dollars} a 12 months aren’t going to make an impression.
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 attention-grabbing analysis from Danny Kahneman and Angus Deaton that exhibits 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 sorts of experiences and relationships cash can very a lot be used successfully to guide a happier, higher life
Barry Ritholtz: Let’s discuss slightly bit about different individuals 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 individuals would you fairly I’m making up these numbers however they’re ballpark $60,000 once you dwell in a city when all people else has $50,000 or would you favor $200,000 in a city the place all people 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 effectively I’d fairly 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 dwell with and so when we now have slightly 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 fairly 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 effectively I’d favor one versus the opposite, however the reality is that the preponderance of responses replicate the truth that we need to really feel related to our tribe and secure in our tribe and when you might have slightly bit greater than others it could possibly make you are feeling fairly good go quote for quote you gave me H.L. Menken I’ll provide the unique JP Morgan he stated 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 inform you how typically I’ve heard individuals say “My neighbor is making all this cash and that man’s a moron,” it’s virtually as if it’s insult to harm — what’s it about seeing any individual 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 necessary from a monetary well-being perspective for individuals 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 stated matter to you and your family members. That can be utilized to mitigate a few of these unfavourable emotional impacts, when it’s identical to, I’m on the on line casino I guess on black he guess on pink 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 manner by means 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 positive aspects of their portfolios.
Brian Portnoy: Investing outdoors of a well-defined monetary plan is theory. And which may not essentially be a foul factor you understand 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 best way that that 2% of my belongings scratches such an itch. I can’t start to inform you yeah that’s why we advise advisors to at all times enable some shoppers 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 type 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 really all of your cash you’ll by no means have been capable of 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 best way there’s nothing mistaken with being within the inventory or bond market or in crypto or in some other market and seeing if you happen to can ship carry your perception into choosing higher securities or higher outcomes.
Nevertheless if we’re actually desirous about the connection between cash and happiness when you might have a effectively outlined plan it signifies that you’re heading in direction of one thing it could possibly be your children school schooling it could possibly be a cushty
It could possibly be a cushty retirement, it could possibly be a selected trip that you’ve got in thoughts, so that you choose your purpose and also you make investments accordingly. You construct a portfolio, you might have time horizons, you might have threat tolerance, it’s not as horny or as provocative as enjoying the markets so to talk however the dialog about cash and happiness really makes much more sense within the context of getting effectively 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 attention-grabbing. You understand this concept of cash shopping for happiness comes up on a regular basis it comes up in conversations with shoppers 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 in the end 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 fulfill 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, more cash doesn’t at all times purchase happiness, but when used proper it might purchase experiences you may assist others and it could possibly carry a lifetime of funded contentment if utilized appropriately
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