So Long, See You Tomorrow

Incognito Money Scribe (I.M.S.) is coming to an end. I will keep it live, but will no longer update it with new posts.

After a great year and a half, I am sorry to put it to a stop. But I am much more excited about what’s coming next. Tomorrow (2/18/22) I am officially launching The Root of All on Substack.

The Root of All will cover similar topics in the same writing style as I.M.S., though with some creative variations. (I’ve already moved over some of the most popular pieces published on I.M.S.) It will also include much more content, including Q&As with notable finance/business writers, tips and exercises to apply to your projects, curated links to interesting articles and more.

I appreciate everyone who supported I.M.S. Thank you!

For those of you who have enjoyed I.M.S., I hope you follow me on Substack, too. I’ve conveniently transferred email address of those who have subscribed to this blog. But if you follow via WordPress, you’ll have subscribe again. For now, the newsletter is completely free, but paid subscription options will become available as it hopefully grows.

With this new format, I will publish more consistently while creating the kind of publication I really want. I originally started I.M.S. to write to up-and-coming financial writers and other experienced financial writers like me who often work behind the scenes without their own bylines. Hence, the name. But, I had the good fortune of writing a post about money that was widely shared and the blog quickly turned into a personal finance blog.

So, it is time to build a platform that is more aligned with what I.M.S. has become and with my own vision.

Please join me at The Root of All, and say good bye to Incognito Money Scribe. It’s been a fun ride.

If nothing else, this little guy will always remind of the good times we’ve had:

What a 500-Year-Old Saint Taught Me About Money

Here’s a mental tool for improving your relationship with money that I learned from a saint. 

Money plays a major part in all our lives. Yet, no one really masters it. Even the richest among us are prone to inconceivable financial blunders. You just get a little better at it as time goes on. A major reason why is psychology, for which most prescribed financial tools are terribly inadequate.

This is a fact that became more apparent to me when I started a religious conversion to Catholicism, which introduced me to the saints. (For some of you, don’t worry. This isn’t some kind of attempt to evangelize.) Turns out, even the most pious of people commit sins. 

Cognitive biases and bad habits are not mental accounting errors. After all, our relationship with money is not based on simple calculations, but the perpetual stew of our economic situations, millions of years of evolution, mindsets, family history, DNA, neighbors winning the lotto, last night’s sports scores, our boss’s mood, random luck, and just about everything else in between. All of which doesn’t fit well in a nice organized spreadsheet.

One saint in particular taught me the secret to improving our relationship with something is through honest self-reflection rather than callous self-restriction. And, he had a simple five-step method for doing that, which is what I want to share in this post.

The saint in question is Saint Ignatius of Loyola, who lived in 16th-century Spain and had aspirations to become a decorated military leader and ladies man until he found himself in the path of a speeding cannonball. While convalescing in his family’s castle tower, bored out of his mind, he read a book about saints and became inspired to give up his life of adventure and chivalry to live a more meaningful life of God, going on to found the Catholic order known as the Jesuits. 

St. Ignatius popularized a prayer he called the “examination of conscience,” which is most commonly known by its original Spanish name — the examen.

Basically, the examen is a daily prayer designed to help believers find the workings of God in their lives. But it is more than that: it is a practice for heightening your attention, identifying your weaknesses without judgment and developing creative solutions for a better future. All of which makes it a useful framework for non-believers, too, who want to improve a relationship — be it with their work, an object of addiction, and, yes, even money.

To better understand how it works, it helps to first take a brief look at its original form.

St. Ignatius’s Spiritual Examen

The examen consists of just five simple steps. Yet for hundreds of years people have found it to provide profound benefits. St. Ignatius regarded it as so important to a person’s spiritual life that out of all Christian prayers it was the one he believed you should never neglect.

If you were to pray the examen, here’s what you would do:

1. Gratitude: Give thanks to God

Thank God for any favorable or positive things that happened to you during the day.

2. Ask for the grace to recognize your sins, or faults

Identify where you acted contrary to your better judgment, or what you’d recognize as turning away from God. Maybe you lost your temper with someone or didn’t lend a hand to help when you could.

3. Review of your day

Start at the moment you got out of bed and try to recall all that happened up to now. Review every event, as if watching a replay of your day. Notice not only what happened but also your emotions. What made you happy or angry or confused, or helped you to be more loving. The Ignatiation tradition labels the positive moments as “consolations” and the negative ones as “desolations.” 

4. Ask for forgiveness

At this point, ask God for forgiveness for any specific faults or sins committed throughout the day. 

5. Resolve to amend your faults

Lastly, ask for God’s grace to resolve your faults tomorrow.

As you can see, the examen is a meditative practice. Over time, the consistent reflection of your positive and negative experiences adjusts your mindset. Like mindfulness meditation, it can provide a greater awareness of your thought habits, which you can then steer toward more constructive patterns. But the examen has a more direct focus than the abstract goal of quieting your mind. For believers, that means growing closer to God. 

The beauty of the examen is that it is malleable to other areas of our lives. So, let me now show you how I have implemented it into my financial life. 

The Financial Examen

This is what I call “the financial examen.” In contrast to traditional money tools like budgeting, it is something that is self-reflective rather than restrictive. While the goal may be the same, to achieve wealth, the focus is on building habits rather than restricting actions.

Before going through each step, here are a couple suggestions for practicing the financial examen:

  • Since most of us don’t make noteworthy financial decisions every day, consider practicing it on a weekly or monthly basis. Any longer, you’re liable to forget events and overlook important experiences and emotions shaping your relationship with money. Keep in mind, this takes only 5-10 minutes to complete.
  • Use a journal. Writing down your thoughts and reflections not only lets you keep track of your progress, but it also helps you think more deeply.

Now, here are the five steps of the financial examen:

1. Gratitude

Write down what you are most grateful for in the past week or month. This isn’t much different than keeping a gratitude journal. Here’s the thing though: Don’t feel obligated to simply note what you think you should feel grateful for — food, health, job, etc. That stuff is fine, but make it personal. Maybe you’re grateful for the way the barista remembers your name and coffee order each morning. Maybe you appreciate the pithy way your boss acknowledges your performance on a project. 

Ultimately, you may find that living a certain lifestyle or surrounding yourself with certain people is what you value most, or that money isn’t even a factor in the places you most feel grateful. 

For me, I’ve come to realize how much I cherish walking my kids to school every day. Therefore, I can’t imagine taking on work that would not allow for that, no matter what the financial reward. That’s a financial revelation, one I couldn’t have imagined saying only a couple years ago. 

The point is that gratitude comes in all shapes and sizes. And, it is as physiologically uplifting as it is spiritually uplifting. As the writer Melody Beattie wrote: “Gratitude makes sense of our past, brings peace for today and creates a vision for tomorrow.”

Research suggests that gratitude is a powerful quality. Studies by psychologists Robert Emmons and Michael McCullough show that people who counted their blessings had a more positive outlook on life, exercised more, reported fewer symptoms of illness and were more likely to help others. This is further supported in work by psychologist Nathaniel Lambert that finds stronger feelings of gratitude are associated with lower materialism. 

Perhaps, most important, giving thanks tempers our innate desire for more — from which many financial mistakes are born. 

In the words of Aesop:  “Gratitude turns what we have into enough.”

2. Review your days

Pick yourself up in your mind like the little Google map figure and plop yourself back in time to the beginning of last week or last month. Now, run through that period of time and jot down any positive moments and any negative moments that you feel are noteworthy. Explore their financial ramifications. What things did you do that were aligned with your financial goals? What about the things that were contrary to those goals? How did they make you feel?

Using the words of St. Ignatius, these are your consolations and desolations. For example, you might note how relieving it felt to increase your retirement savings contribution. Or, on the other hand, you might feel guilty for buying a new car without shopping around first. 

What’s most important about this step is that it can develop your ability to pay attention, which is no small thing. In the Art of Noticing, journalist Rob Walker makes the point: “Paying attention is the only thing that guarantees insight.”

Our past experience can offer more insight and clues about our relationship with money than the size of a bank account or investment return.

Over time, you will become more aware of your habits, which will help you anticipate them in the present. Reflecting on your past is a way to “apprentice yourself to the present,” as the poet Maggie Smith puts it. And, with enough reflection your true values will reveal themselves like diamonds in the minutiae of life. 

3. Identify your faults

Here, take an honest look at the actions that were not in your best financial interest. Perhaps, like many people today, you fell victim to FOMO or overconfidence bias and bet big on some risky investments that didn’t pan out.

It may sound unhealthy to marinate on your faults, but it’s actually a productive exercise in humility. Remember, no one is perfect; not even a saint. It’s good to have a good dose of humility in life. As Bob Seawright writes: “If we turn the light of humility inward, we’ll see how much of our success — such as it is — is due to others and luck.”

What’s more, naming your faults is the first step to overcoming them. It is an acknowledgement of your desire to grow. After all, these are the things standing between you and your better future. Take it from Dorothy Day, potential saint in her own right, who wrote: “It is always so good to write our problems down so that in reading them over six months or a year later one can see them evaporate.”

4. Reconcile with your faults

Now that you know where your faults lie, it’s time to imagine a better future and devise steps to make it a reality. In other words, what can you do to reconcile those faults with your financial goals? What specific steps are within your power to alleviate or eliminate your problems in the future?

It could be something as simple as increasing your emergency fund. Or, maybe it is as big as rearranging your lifestyle. Maybe you would be better off living a more minimalist life, or maybe you need to work harder to increase your income. 

Some solutions that come to mind may seem impossible, but keep trying. To look for solutions to your faults is an act of hope, which can benefit you in many ways. In one of his columns, Arthur Brooks says hope “is a conviction that one can act to make things better in some way.” He explains that research shows “high-hope employees are 28 percent more likely to be successful at work and 44 percent more likely to enjoy good health and well-being.”

Hope compounds. Hope begets hope. A courageous commitment to hope paves the way to a better place.

5. Resolve to make better decisions

Last but not least, the hardest step of them all: decide what steps you are going to take and commit to taking them. 

Remember to be kind to yourself. Because if this exercise reveals anything to you, it’s that you’re not perfect. And, the goal isn’t to become perfect, it’s to move forward in life gracefully with your imperfections.

The challenging part is accountability. A consistent practice of the examen can help. Sharing your goals with someone else is another way to keep yourself accountable. 

For lasting change though, consider building what James Clear calls identity-based habits. Essentially, you imagine yourself as the person you want to be and then manifest that identity with the acts that would be attributed to that identity. 

Or, just think of yourself as Batman. Psychologists have reported in Child Development that when four- to six-year-olds pretended to be Batman while they were doing a boring but important task, it helped them to resist distraction and stay more focused. 

Hopefully, this introduction to the financial examen encourages you to explore the psychological side of your financial life. At the very least, it can help you notice the progress you’re making when it often feels as if you’re not moving at all. 

It is said, every saint has a past and every sinner has a future. The actions of your past are not who you are today. But they can help you become the person you want to be in the future. Recognize the inner spirit we all have to build a host of better possibilities for ourselves. 

One Thing to Remember About Improving Your Financial Habits

Tired hands, young and old; tired hands to assemble each plastic piece and screw every tiny screw; tired hands to pull levers and activate conveyor belts; tired hands to pack cardboard boxes and stack containers on steel ships; tired hands to navigate the weathered steering wheel of a semi-truck; tired hands to deliver it to my doorstep; all of which is jumpstarted by a performative gesture as a consumer with a well-rested index finger on a digital button.

It is the cycle of a normal holiday shopping season. The only way to break it is to individually not participate.

Often, what is most effective in changing our habits for the better isn’t a stroke of good luck but a nice, serious crisis. But whether or not it does greatly depends on single decisions, which are what make up our virtues. Habits and virtues, after all, can’t be turned on and off; they take practice.

As we near the end of year two of COVID, perhaps the pandemic hasn’t changed our financial behaviors as much as we first thought.

I have never shopped on Black Friday. I just would rather feel as if my head has been stomped on because of too much wine during Thanksgiving dinner than actually have my head stomped on for a flat screen TV. Though I certainly don’t look down upon those who do.

Except this year, it may be an opportunity to recommit to the financial habits we adopted at the peak of the pandemic. Because it also is a decision to make for the better, and you never want to let a Black Friday go to waste.

***

Barack Obama’s reward for winning the 2008 presidential election was responsibility over the worst economic crisis since the Great Depression. At the time, his chief of staff, Rahm Emanuel, said, “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.”

To view a crisis as an opportunity is a tenet rooted ancient philosophy, as echoed by Roman emperor and Stoic philosopher Marcus Aurelius: “Just as nature takes every obstacle, every impediment, and works around it…so, too, a rational being can turn each setback into raw material and use it to achieve its goal.”

A serious crisis can be opportunistic event for politicians and for businesses (looking at you Peloton and Zoom); but it can be life-changing for people. It depends on our virtues, like prudence and temperance.

A crisis of the pandemic’s magnitude can be viewed as creating opportunities in all areas of our lives, from our health to our jobs to our finances.

Surveys show the pandemic prompted people to reprioritize their financial lives, in most ways for the better. In the Charles Schwab’s Modern Wealth Survey, around half of respondents said they would go back to living and spending as before COVID, but almost a third said they would live a quieter life and save more money. What’s more, 80% said they would be bigger savers than spenders in 2021.

Couple that with Northwestern Mutual’s Planning & Progress study where “reducing living costs and spending,” such as canceling subscriptions and eating out less, topped the list of financial behaviors people adopted during the pandemic and expected to maintain going forward. That’s followed by “paying down debt” and “increasing investing.”

Northwestern Mutual Planning & Progress

Of course, it’s easy to make commitments when you have no other options. The challenge is to sustain them when conditions improve.

Unfortunately, the opportunity to improve our financial behaviors as a result of the pandemic seems to have passed.

For example, the savings of Americans, which skyrocketed with the disbursement of stimulus checks, has fallen back to relatively normal.

Meanwhile, higher prices and supply problems hasn’t kept people from spending more and more.

Those of us who have procrastinated with our holiday shopping will have to simply accept giving the unwrappable gifts of love and companionship.

Maybe that is a gift in itself. After all, most people spend beyond their budgets when holiday shopping. And, more than a third of Americans return gifts, totaling more than $400 billion in returned merchandise. We could spend less or nothing at all and people would understand.

The enticement of Black Friday deals that turn to disappointment because everything is late or out of stock could be seen as a reminder to detach ourselves from the things that don’t provide lasting value. There is no waiting time for virtue.

Surely, there is nothing inherently wrong with consumption. It’s what America runs on, along with Dunkin Donuts. But there is something wrong with mindlessly consuming, to give a gift just to give a gift, to ignore our place in the cycle of things, to spend with nary a thought off its impact on other people, the planet and our wealth.

And, there is something wrong with not seizing opportunity. That is a choice that will have to be made again and again.

I’m not sure that our financial habits will dramatically change once the pandemic is officially over. It’s just too easy to buy stuff.

But that’s okay. At least it has shown us that we can do things that we think we could not do before — to spend less, to save more, to invest more.

And it has shown how small decisions, such as choosing to sleep in on Friday, connects to our virtues.

As another Stoic philosopher, Seneca, said: “Misfortune is virtue’s opportunity.”

You Are What You Eat — and Invest

The premise for investing is pretty simple: to grow your money. It’s as simple as the reason for eating: to satisfy your hunger. Yet, choosing from the myriad investments out there can be as confusing as choosing among the thousands of items stocked on grocery store shelves. 

The fact is not everything is good for you. How can you tell? One qualifier to consider: the source.

The origin of our investments matter. Perhaps, as much as it matters for our food. 

For a minute, consider the apple I’m eating as I write this. It was organically grown at a local apple orchard. No pesticides. No underpaid labor. That information about its origin is valuable. For one, organic produce is shown to be more nutritious. Plus, buying organic is important as apples are a common staple on the “dirty dozen” list of produce that is often saturated with toxic pesticides. Not to mention giving my money directly to a farmer means more to me than giving it to a corporation practicing industrial farming.

We all know some foods are designed to turn a profit more than enrich the health of the consumer. Unfortunately, it can take a while for the science to reach the masses. Heck, everything from cigarettes to Coca-Cola have been marketed as healthy. 

To live a healthy life is what we ask of our food. What do we ask of our investments? 

There are parallels between the food and finance industries, and our relationship to both as consumers. After all, what goes in your mouth will influence your health just as what goes in your portfolio will influence your wealth. 

I thought of that similarity after reading Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Chanced Finance Forever by journalist Robin Wigglesworth. 

The book covers the academic research that forms the basis of index funds — chalk full of Nobel Laureates like Harry Markowitz, William Sharpe and Eugene Fama — and all the key industry innovators and players — Wells Fargo, John Bogle and Vanguard, Lawrence Fink and BlackRock, etc. — that have contributed to passively managed funds overtaking the investment industry. 

Full disclosure: I was given a review copy of Trillions by the publisher. I’m under no obligation to promote it or provide any type of review. I suppose this is a review of sorts, but it’s more of an exploration of the story the book tells as it relates to the investments we choose to buy. (For the record though, I really enjoyed it!)

The Uncomfortable Truth

Index funds were born out of objective academic research on how markets work and designed so that average investors can take full advantage of that information. The same can’t be said for a lot of other funds. 

As Wigglesworth puts it:

“The finance industry has historically been adept at inventing new products that line its own pockets more than those on Main Street. The index fund is a rare exception to the rule.”

A very brief history of index funds goes like this:

The French mathematician Louis Jean-Baptiste Alphonse Bachelier wrote a doctoral thesis in 1900 (!) proving that financial securities move randomly. The baton of Bachelier’s discovery was passed along over the next six decades between the likes of Markowitz, Sharpe, Fama and others, leading to the notion that it’s all but impossible to reliably pick winning stocks.

Expressed creatively by Burton Malkiel in his classic book, A Random Walk Down Wall Street:

“A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.” 

Professionals who are paid to select the best performers in the market more often don’t, which is what Wigglesworth calls the “uncomfortable truth.” Therefore, investors would be better off over time buying the market. With that knowledge in hand, people like Vanguard founder Jack Bogle worked hard to launch cheap funds that offered market averages to the public.

In summary, Wigglesworth writes:

“The genesis of index funds was the realization that most people–whether experienced professional money managers, a dentist investing for their retirement, or unemployed twentysomethings day-trading to make a quick buck — make terrible investors. The best long-term results come from buying a big, well-diversified portfolio of financial securities, and trading as little as possible. Jack Bogle built a vast financial empire around these two basic principles.”

Cost also makes a difference. The more you pay in fees, the less of the fund’s return you get to keep. By simply tracking the market, an index fund can charge very little as it doesn’t have to pay anyone to select securities and constantly make trades. 

Compare that to other funds that are built on the idea of skilled fund managers being able to find market opportunities and charge a higher price for their “expertise.”

What Wigglesworth deftly conveys is the amount of pushback these academically proven principles received by the old guards of Wall Street. 

I hate to put it so sophomorically, I really do, but here it goes: The finance industry likes to smell its own farts. (Sorry!) Some people just like to clothe themselves in the illusion of superior skill. So much so, that any counter evidence is perceived as a threat. 

Consider the anecdote Wigglesworth shares about the Wells Fargo analyst Willam Fouse, who tried repeatedly to get different firms to create passive funds. One boss tells him incredulously: “Goddammit Fouse, you’re trying to turn my business into a science.” 

As an investor, isn’t that what we want? Hard evidence over irrational confidence? 

We can see their fears realized, as the rise of passively managed funds has steadily eaten away fund fees. 

Less money for Wall St. yachts

It’s worthwhile then to know the intentions of those selling you an investment. 

Wigglesworth recounts a common industry reaction to index funds:

“[A]s the writer Upton Sinclair once observed, it is difficult to get someone to understand something when their salary depends on them not understanding it. ‘If people start believing this random-walk garbage and switch to index funds, a lot of $80,000-a-year portfolio managers and analysts will be replaced by $16,000-a-year computer clerks. It just can’t happen,’ one anonymous mutual fund manager griped to the Wall Street Journal in 1973.”

Turning a Dollar Into a Million

In his famous essay, “The Pleasures of Eating,” the poet and environmental activist Wendell Berry said, “eating is an agricultural act”, meaning that what you choose to eat has real influence on food production. To be ignorant of that fact, he says, makes you vulnerable to the influence of the food industry, which often places profit and volume over quality and health. 

Investing is a capitalistic act. Your individual investment decisions have an impact on the investment industry as well as on the quality of your portfolio. Where you put your savings can influence the well-being of the industry — promote funds that are designed to help investors, keep financial advisers who actually care about you in business — and ultimately your own well-being.

In all fairness, there are legitimate concerns about the growing influence of index funds, which is discussed by Wigglesworth in Trillions. For example, they could be warping the markets they are meant to emulate and accumulating far too much corporate voting power. However, all of that is far beyond the scope of this blog.

Ultimately, investing requires a little learning and soul searching. 

Not everything available to you — be it by a professional, or in your 401(k), or in an account you manage yourself — is necessarily aligned with your best interest. You should know why you own what you own. 

Of course, ego isn’t an easy thing to extract even as a professional. Understanding how markets work can help add a dash of humility into our thinking. Too often we succumb to our own biases that make us think we know more than we actually do. 

One of the many interesting anecdotes in Trillions is a reference to a speech by Warren Buffett, during which he asked listeners to imagine a nationwide coin-flipping contest. Each American puts in $1 each day. Those who guess wrong are eliminated while the winners continue playing. Statistically, after 20 days, 215 players should remain, having now turned a single dollar into $1 million. Buffett joked that surely some players would also experience an exponential rise in confidence, impelling those players to “write books on ‘How I Turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning.'”

We can see that kind of irrational exuberance proliferating today, with constant market highs, meme stocks and the launch of various cryptocurrencies. It’s easy to feel like a genius when everything is going up, just as it’s easy to feel like a genius flipping a coin. It doesn’t mean any of it is good for you over the long term.

As an investor, it’s important to know your sources. The investments you choose are like the foods you eat. You don’t need all that complex, artificial stuff with lab-engineered ingredients you can’t even pronounce, either in your diet or your portfolio, when simple will do. 

If you don’t know what you’re picking is ripe, then it’s you who is ripe for the picking. 

How do you choose?

Take it from Bogle, who wrote in The Little Book of Common Sense Investing:

“When there are multiple solutions to a problem, choose the simplest one.”

No Such Thing as Enough Money

How much money is enough? 

It’s a philosophical money question that often arises out of discontent. We see someone of substantial means, like a celebrity, live a troubled life. Or, we ourselves experience great fortune yet feel unhappy.

It makes us wonder where the finish line is, the point when you can stop striving for more and settle into a life of satisfaction.

There are some great financial blogs that provide good answers, such as here and here. And then there are a variety of books that tackle this question in their own ways: Ego Is the Enemy, The Last Lecture, the Bible, to name a few.

Another book that resonates with me, perhaps because of its instructive format, is How Will You Measure Your Life? by the late Clayton Christensen.

He comes to the startling realization:

“I had thought the destination was what was important, but it turned out it was the journey.”

That to me is the answer to the question. Though it is, in a way, a non-answer. As with many of life’s mysteries, there is no definitive conclusion. 

There is never enough money. 

Don’t get me wrong. I don’t mean that you can always use more money to achieve a perfect life. Rather, I mean the exact opposite.

No amount of money will insulate you from suffering. 

This week Elon Musk’s wealth jumped by $36 billion in a single day, bringing his net worth close to $300 billion. Yet, even he has experienced some very public setbacks, including the tragedy of losing his first child. 

“The race is not to the swift or the battle to the strong, nor does food come to the wise or wealth to the brilliant or favor to the learned; but time and chance happen to them all.” (Eccles. 9:11)

There is no such thing as enough money, as there is no destination of absolute happiness. It’s all about simply having the capacity to notice the truly joyful things along the journey. 

Pay attention to the wrong things, and life starts to feel empty. As Christensen writes:

“In your life, there are going to be constant demands for your time and attention. How are you going to decide which of those demands gets resources? The trap many people fall into is to allocate their time to whoever screams loudest, and their talent to whatever offers them the fastest reward.”

His solution is to focus on what provides lasting happiness:

“Intimate, loving, and enduring relationships with our family and close friends will be among the sources of the deepest joy in our lives.”

I am writing this because yesterday we had to say good-bye to a special member of our family. Our dog Sunny, who I referenced in this previous blog, developed a severe case of intervertebral disc disease. We woke one morning to find her acting strange, and within 48 hours she was paralyzed. With a heavy sigh, the neurologist gave us the bad news that her chances of any type of recovery were minimal. At best, she would need consistent pain management. That was no way for her to live. 

I am extremely grateful for the gift of having her in my life. 

In the afternoon, my wife took Sunny for her last walk. We gently set her in the kids’ red wagon. Then she pulled her around the neighborhood, taking her one last time around her favorite trees and brightly colored fire hydrants. The late October sky was unseasonably warm and clear. The white sun brightened Sunny’s golden fur. 

When my wife and Sunny came back around the corner, I felt as rich as possible — to have known Sunny, to have such a caring and loving partner, to have a tragic day made picture perfect in so many ways. 

That’s enough.

There is never enough money, if you can’t see the riches in front of you now. 

The question shouldn’t be: how much money is enough? It should be: how much more clarity do you need to see the rich, joyful things happening all around you? 

The Relationship Between Money and Marriage

I love scotch; she hates it.

There are many things my wife and I don’t agree on, but money isn’t one of them. We are intentional spenders, buying only what mutually aligns with our needs or values. For instance, disinterested in paying for the trappings of an ostentatious wedding, we tied the knot at New York’s City Hall; our reception was watching our first son play at a public playground in the East Village on a warm fall afternoon.

We’ve been happily together for 16 years, which makes me wonder: Does love make the financial side of marriage work, or is it the other way around?

The most important decision you’ll ever make

Warren Buffett’s financial wealth is only rivaled by his wealth of wisdom. Rarely does a day pass without someone in the finance industry quoting the Oracle of Omaha on social media. Heck, Warren Buffett’s influence is so great, people have essentially made careers out of quoting him.

Yet, with all of his knowledge on investing and business, he says the most important decision a person can make has nothing to do with investing and business. At the 2009 Berkshire Hathaway annual meeting, he said:

“Marry the right person. I’m serious about that. It will make more difference in your life. It will change your aspirations, all kinds of things.”

You don’t make it to Buffett’s level of stature with a track record of being wrong often, and researchers seem to agree with him on this point. Studies show that marrying the right person can significantly improve our health, career success and wealth.

Marriage will change you in many ways. By definition, marriage — joining two into one — is disruptive. Often, for the better. It is about pursuing new things while sacrificing others. A major contributor to that disruption though is money.

Although we’ve long moved on from the ancient practice of marrying for the sake of status, money is an irrevocable part of marriage, at times, for better, and at times, for worse. Here is what research has uncovered about the relationship between money and marriage.

The relationship between money and marriage

Married people are wealthier than single people.

A 2005 study tracking people in their 20s, 30s and 40s found that married people experienced a 77% increase in wealth over single people. In fact, married individuals in the study saw their wealth rise 16% for each year of marriage. This makes sense considering married couples can combine incomes and share expenses.

However, it may not tell the whole story. You can’t expect to tie the knot and just start watching the money roll right in. More affluent people are more likelier to get married in the first place. A report by the American Enterprise Institute details the wide gap in marriage rates by income. About a quarter of “poor” adults aged 18 to 55 are currently married, compared to 56% of middle- and upper-class adults.

Wealthier couples are happier.

A study published in the Journal of Happiness Studies suggests that married individuals are generally happier than the unmarried.

What about happiness among married couples?

Turns out, money is one of the biggest contributors to marital happiness. That’s what University of Maryland sociology professor Philip Cohen found after analyzing data from the General Social Survey, a long-running study of Americans’ views and behaviors.

The survey shows a class divide when it comes to marital happiness. Of upper-class married couples, 70% said they are “very happy” while only 53% of lower-income couples could say the same.

Although interesting, this is far from remarkable considering richer couples don’t have to stress over paying bills and have the economic means to splurge on things known to boost happiness, such as take vacations and attend entertainment events.

How married couples spend money matters.

It has become personal finance gospel that spending money on experiences makes us happier than spending money on material things. The same is true of married couples. As this Marketwatch article exploring happiness among married couples states: “Partners spending money on a shared experiences like vacations or going out to dinner, are more likely to be very satisfied with life than those splurging more on less exciting things like groceries, insurance and cell phones.”

Money issues ruin relationships.

For many couples, the vow to stay together “for richer, for poorer” is a fairy tale. Money is the leading cause of stress in relationships, says one SunTrust survey.

According to the Institute for Divorce Financial Analysis, money issues are responsible for 22% of all divorces, making it the third leading cause. Unfortunately, divorce isn’t even the worst of it. Financial stress has also been linked to domestic violence.

Some people would even rather have their partner sneak around with another person than sneak around with a hidden credit card. In a survey from CreditCards.com, about 31% of people said keeping credit cards and other accounts from a partner is worse than physical infidelity.

Getting married can make you more successful.

To Buffett’s point, research suggests that marrying the right spouse can positively impact your odds of personal and occupational success.

A Carnegie Mellon University study of 163 married couples indicates that people with supportive spouses were more likely to pursue greater opportunities in life, and from that, experience more personal growth.

In another study, from Washington University in St. Louis, researchers show people with a conscientious spouse saw their salaries rise by $4,000 per year and were more likely to get a promotion.

While this research is a testament to the potential advantages of marriage, for us married folks, it should also serve as a call to action to be a more supportive partner. Just take a minute to think of the difference you can make in the life of the person you love.

Divorce is very costly.

Now that we know what can happen when you choose the right one, what about when you choose the wrong one? Well, on top of the emotional trauma, you could experience an equal level of financial stress.

In the same 2005 study referenced above, divorcees saw their wealth decline by an average of 77%! And, according to a survey by Bankrate, the average cost of a divorce in the U.S. was about $15,000 per person.

With those costs, “death do us part” may be a better deal.

Kidding aside, two people who are extremely unhappy in a marriage have little to gain by staying together. The high consequences of a failed marriage though can help explain why so many people today wait to marry or choose not to marry at all.

What’s love — or money — got to do with it?

She loves working on the house; I hate it.

I don’t know if we have a perfect marriage. But I do know that we have a marriage that is good enough to keep trying to perfect it. I think that’s the secret to a happy marriage. Yet, considering the strong relationship between money and marriage, perhaps the secret to a happy marriage is money.

Let’s consult some people with more experience.

John and Charlotte Henderson, at one time the world’s oldest living couple, said the secret to a happy marriage of more than 80 years was to “live life in moderation.” Ralph and Dorothy Kohler, meanwhile, said the secret to reaching 86 years of marriage was by doing everything — including compromise — together.

Maybe marrying the right person, as Buffett suggests, is really just a matter of luck. It could be the same kind of luck Buffett attributed to his own success by saying he and Charlie Munger won the “ovarian lottery.”

After all, trying to find “the one” may be highly unrealistic, if not impossible. As Lauren Groff writes in Fates and Furies:

“Paradox of marriage: you can never know someone entirely; you do know someone entirely.”

A perfect marriage could mean accepting your partner’s perceived imperfections while recognizing your own. Taking a clinical approach in finding a mate — that is, judging each suitor based on a set of predefined qualifications — will likely set yourself up for failure.

In his book, The All-or-Nothing Marriage, psychologist Eli Finkel says that modern marriage, with the high expectation that it should provide everything from physiological fulfillment to love to financial security to self-actualization, runs the risk of “suffocation.” Most people cannot be all things, all the time, to someone else.

Couples who can meet all those expectations for each other indeed have very happy marriages. But it takes work.

One technique Finkel suggests is to frame the actions of your spouse in a more positive light. For example, instead thinking your spouse is always late (like my spouse!), assume that it isn’t on purpose and consider the unexpected events that prevented him or her from arriving on time. Another option is to adopt a growth mindset. That is, view compatibility as something that is nurtured rather than is a fixed entity. This helps couples navigate and grow from marital conflicts.

Finkel also takes a page from Investing 101 by recommending married individuals to diversify their social networks, much like diversifying your portfolio. Look to other people and outlets to meet your needs rather than place sole responsibility on your spouse. In other words, don’t put all your eggs in one basket.

Choosing someone based on their ability to maximize certain qualities like financial security or status will not guarantee a happy marriage. In that sense, money, though big, is just one of many things that can influence the quality of a marriage.

Money is an extension of what you love and value. It’s a means to an end. If you focus only on money, you won’t receive lasting gratification from anything. Not your career or your reputation — and certainly not your marriage.

After all, a bank account won’t be there to hold your hand on your death bed.

More Data ≠ Better Performance

Data, data, everywhere data. Blockin’ out the imagination. Breakin’ my mind. Do this, don’t do that. Can’t you read the data? 

Here’s one childhood dream of mine that hasn’t died: to dunk a basketball. Just one glorious flush on a rim at regulation height. To realize this dream, I would have to vastly improve my vertical performance. 

With each attempt, I could analyze my speed, foot placement, distance, angles, etc. All reasonable data points. But, alas, none of them provide the most pertinent information: I am just too short to reasonably expect to dunk a basketball. 

When it comes to performance, data matters but information matters most. 

Even the least humble of us want to perform better at something. I want to write faster. You may want to earn more money. Nassim Taleb wants to deadlift heavier weights. 

How do we improve performance?

Performance is an amalgamation of things. An athlete can’t simply choose to play better just as an investor can’t simply choose to generate higher returns. We need to tinker with the individual inputs, the data. 

Except we live in a time when our thirst for improved performance is drowning us in data. With the watch on my wrist, I can tell you how much I slept, last night’s scores, the weather and the current price of wheat in Australia. 

Data and information are not the same. It is information and insights that help us make better decisions and improve performance. Living in a time of abundant data holds the promise of extracting a wealth of information and valuable insights. But, being mesmerized by the loads of data can obscure the fact we are not getting what we need most. 

If you go on a trip, knowing how long each traffic light stays red, or how many green sports cars are on the road, or even the route’s total elevation will not help you reach your destination faster. 

That is the big data fallacy: more data does not mean an equal measure of useful information. It can produce the opposite effect, as we confuse data for information. The forest for the trees. Even when we can ascertain interesting information from a wide range of inputs, it doesn’t guarantee any of it is valuable in relation to our personal goals. 

Unfortunately, we have a tendency to want to emulate the elite. We try to think like professional athletes and hedge funds, not as ourselves. 

Chasing Performance

If we want to understand the behaviors associated with our obsession with performance, a good place to start is in the world of finance, which has a way of exposing our faults writ large.  

A few weeks ago, Morningstar released the results of its annual “Mind the Gap”study. It found that investors earned 1.7% less than the total returns of their fund investments over a 10-year period ending on Dec. 31, 2020. 

Morningstar attributes this gap to “inopportunely timed purchases and sales of fund shares, which cost investors nearly one sixth the return they would have earned if they had simply bought and held.” 

In other words, the average investor tends to chase performance. That is, to let recent price changes guide their investment decisions, which leads to buying AFTER an investment rises (thus missing the gains) and selling AFTER the investment drops (thus locking in the loss). They focus on short-term price data even when it provides no financial benefit. It is an example of focusing on data that is difficult to understand and offers very little meaning, especially as they relate to your personal financial goals. 

What makes the most difference in financial performance is how much you earn, how much you spend and how much you save. Take what’s left over and invest it knowing that the stock market tends to rise more than it falls. That’s it. All the other numbers, measures, figures, statistics and trends, which are generally out of your control, hardly matter. 

As the late Jack Bogle said, “Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes.” 

The Douwalter Method

Another good place to study the concept of performance is the high-stakes world of sports, where every small competitive edge seems to matter. 

Perhaps, there is no sport more obsessed with data than track and field, where a fraction of a second is the difference between the podium and a fourth place obscurity. That sliver of a difference pushes athletes to mine everything from heart rate and sleep performance to lung capacity and power output, all in hopes of cracking the code of training.

A hot performance trend among some runners and coaches is to monitor glucose, which your body turns into energy. As reported by Alex Hutchinson in Outside magazine, the hope is to use glucose levels to help determine when and how a runner needs to refuel to maintain optimal performance and avoid “hitting a wall.” But glucose levels vary widely from runner to runner. So far, studies are inconclusive on whether glucose monitoring can help improve a runner’s performance. 

It begs the question: where is the line between acting on useful data and being mired in data that does more harm than good?

Tom Hughes, a medical doctor and sports science lecturer at Leeds Beckett University in Britain, worries that obsessively tracking glucose numbers is to “stress about another number we don’t understand.” 

That seems to perfectly sum up the reaction of many people to every new study or hack published in the news. 

Compare the big data approach to that of Courtney Douwalter, who is widely considered the best female long-distance runner on the planet. Maybe the best runner period, as she consistently dominates ultramarathons, beating both women and men. 

Unlike most professional runners, however, Douwalter does not have a coach and does not follow a detailed training plan. Instead, she primarily relies on how she feels physically and mentally to determine her training load.

As she explained on the Rich Roll Podcast, “Without a plan, I do much better listening to my body.” Her aversion to coaching or following a detailed training plan, she explains, is that she wants to avoid becoming reliant on superfluous metrics and miss the more important insights of her body.

Information over data.

Whatever principles or rules or razors support the same idea, I will consider it Douwalter’s Method: listen to your most important source of relevant information and don’t sweat the superfluous details. 

As the Morningstar study revealed, becoming too focused on data instead of information and insights tends to accentuate our faults rather than improve them.

Three Brief Performance Rules

Considering the fallacy that more data equals more information, here are a few guidelines for improving performance:

The biggest difference makers will always be what you most directly control. We can control what we put in our bodies. We can control how much we rest. We can control how much we save and spend. These will pay higher dividends than external forces like dietary supplements, high-tech shoes and the stock market. To obsess over measurements that are beyond your control is like trying to move an inch when what you already have can take you a mile. 

No amount of data will help you, if you don’t know what to do with it. The most important aspect of information is relevance. A piece of information is only useful and valuable if it is relevant to your needs. What is relevant to me may be completely irrelevant to you, and vice versa. It is the relationship between signal and noise. As the mathematician Edward Ng put it: “One man’s signal is another man’s noise.” 

Of course, there is a whole cottage industry that will try to sell you on noise. It is why people are suckered into paying hundreds of dollars for carbon-plated running shoes or putting their retirement savings in financial products they don’t need. 

The boring stuff is typically the effective stuff, which makes it boring. Get plenty of rest. Eat a balanced diet. Move around a lot. Those are the keys to becoming an athlete. Spend less than you earn. Save regularly. Invest in a diversified portfolio. Those are the keys to becoming wealthy. None of which are sexy, but they work. 

Take it from the greatest dunker of all time:

Get the fundamentals down and the level of everything you do will rise.

MICHAEL JORDAN

Cost vs. Sentimentality

One thing I love about my neighborhood is all the dogs. As anyone with a heart and soul knows, good “boys” and “girls” can make a good neighborhood. Sometimes in the evening, when I and many of my neighbors walk our dogs for the last time of the day, I feel pangs of envy. Each dog performs a similar dance, ambling from one smell to the next wagging its tail like windshield wipers in a downpour. How happy they are. It makes me think how easier life would be to live like dogs with a one-track mind — to simply act out of love or hunger or basic bodily needs. 

But, alas, humans are left to juggle many considerations, both in the present and the future, especially as they relate to money.

I apologize, this piece is not about dogs, but rather the choices we make. 

Three years ago, my wife and I made a decision that would only be a good decision if things in the future worked out just right. We chose to buy a home that would take a substantial bite out of our budget. Now that I work from home, I have had a lot of time to sit, literally, with that decision. 

What I’ve come to realize is that there are rarely perfect choices. At least, there is no right way to decide if the future that has come to pass is any better or worse than any other possible future. Although we want to make optimal decisions, optimal in most instances is a mirage. 

That can be a comforting feeling. As Salvador Dali said,

“Have no fear of perfection, you’ll never reach it.” 

This is true of financial decisions, as we try to balance what we can afford and what we want most. It is the friction between cost and sentimentality. 

From a purely financial perspective, all that matters are the numbers. But, of course, we don’t always do what the numbers say. The reason isn’t only because we’re not hardwired to think in probabilities or absolute logical terms. Numbers, even those with dollar signs, just aren’t the only thing that matters. What provides joy in life is not always financially rational. 

Essentially, our financial decisions fall on a spectrum with numbers on one end and emotions on the other. For example, a stock is an intangible thing. I will never hold it or look at it or admire it. I invest my money and then one day take it back out. I will never stand inside a stock or watch my family grow alongside it. So, when deciding what stocks to buy, I care mainly about the price of those stocks and not my emotional attachment to them.

A house is a whole different matter, which brings us back to my neighborhood and my four-legged neighbors. To better express this relationship between cost and sentimentality, let me use my house as an example.

We wanted a house with more space in a better neighborhood with a better school system. We found that home, but with the catch that it was beyond our preferred budget.  To move into this home would be financially risky as we waited for our children to graduate nursery school, freeing up some extra dollars, and we worked to increase our income. It would have made much more financial sense to stay in our old house or move to another house somewhere else.

But the home met so many of our desires. When we first viewed the house, our imaginations filled instantly with the memories that could be created there. In the end, we made the decision primarily out of sentimentality rather than cost. 

Was it the right decision? 

Cost

Since we moved into a home that is not only larger, but also located in a more affluent city with much higher property taxes, we saw our mortgage payment jump around 50%. Plus, as a larger home, our utility costs rose, too. 

Then there is the pool, an in-ground 40,000-gallon money sucker. After skimming the surface, buying gallon after gallon of chlorine and running the filter 9 hours a night, I can sympathize with those homeowners who choose to say screw it and fill their pools in. 

Making a choice to increase one’s expenses is certainly not considered ideal. 

But wait, there’s more. Let’s talk about the condition of the home.

The Japanese military was pummeling American forces in the Pacific, causing General Dougals MacArthur to flee, while thousands of miles to the east our home was being built. That makes our home nearly 80 years old. Although the bones are in good shape, it has needed some major improvements. We updated the kitchen, remodeled the living room and improved the landscaping. (To my dying day I vow to never remove shrubs by hand ever again.)

Our cost savings have come from doing  95% of the work ourselves. Still, we’ve paid for the supplies and spent our time and energy.

As any homeowner knows, there is no rest for the weary. A home is never finished. Homeowners commiserate in the phrase, “there’s always something!” Time takes its toll. Part of choosing to buy a home is not only what you can reasonably afford, but also how much home you want to handle. Again, cost vs. sentimentality. 

All told, I can play endless mind games with all these costs. That money could have been invested instead to build wealth. It could have been put toward travel or a new car.

So, is this home worth that missed opportunity cost? 

Sentimentality

On the last day of school in June, the sun had just rubbed sleep out of its own eyes when my oldest son hit me with a deep question while we waited for a car to pass: “Who’d win in a foot race, The Flash or Superman?”

We live in what is called a walkable school district. That means children can reasonably reach their respective schools on their own two feet or by bike. There are no school buses. One of the greatest joys of my day is to walk my kids to and from school — the irreverent banter, the hello and goodbye from the crossing guard, the chance to meet my sons’ friends, the quality time spent together starting and ending our days.

I would argue a choice that lets you grow closer to those you love and build relationships with the people around you is beyond pricing. 

But space is also important. Space is good for getting people together to create memories, such as holiday dinners in a spacious dining room with bottles of wine (so much wine!). 

And, after living in a ranch home, with the bedrooms on the same level as the kitchen, I’ve come to feel a great sense of gratitude for the space to grind some beans and make a cup of fresh coffee without waking the whole house. I can sit at my desk and watch people outside running and biking by. This is an active community, which can be infectious in a way that improves our own quality of life. 

In the spring and summer, our home blooms like a flower. We open the doors and windows and uncover the pool. A pool with young children is a source of constant entertainment. It is a place to make lasting memories — the things I can actually take with me to my death bed. I won’t forget the day I watched nervously as my boys removed their floaties and plunged into the pool, sinking like rocks until they popped back up and started to swim–swim without help for the first time–like drunken walruses. 

Actually, that’s not just a memory, it is an imprint of what this home means to me. I don’t know what the value of all of this is, if it indeed can ever be valued. But I do know that it is worth something. Some of the greatest joys you just cannot assign a number.

Sure, there are limits. The heartbreak would be that it all slips away. You cannot ignore the financial possibilities of what you could have done differently. That is the friction between cost and sentimentality. 

Our house could be on the precipice of one of the worst financial decisions we’ve made and one of the best experiences we will ever share as a family. 

Sentimentality can’t make you rich, but it can make you feel happy in ways money never will. 

One is not necessarily better than the other. You are fortunate if you even have the ability to make a financial decision between the two.

What matters most is that you make the decision for all the right reasons. Ask yourself, am I making a choice for only cost or sentimentality reasons? What is more important to me? Rarely, the choice is perfectly balanced. Perfection is subjective anyway. Personal finance is an art, not because it is hard or tricky, but because it is subjective.  

Some may call it a foolish financial decision. We call it home. 

Sunny in the garden.

You Contain Multitudes, Diversify Accordingly

Do I contradict myself?

Very well then I contradict myself,

(I am large. I contain multitudes.)

– Walt Whitman, “Song of Myself

The world asks us to be quickly readable, but the thing about human beings is that we are more than one thing. We are multiple selves. We are massively contradictory. 

– Ali Smith

A group of economists analyzed trades made by 783 elite investors over a period of around 16 years. These were investors who managed the assets of billionaires and large institutions, with an average portfolio size of $600 million. The performance of these big league investors was compared to the performance of what amounts to someone or some creature like, say, a dart-throwing monkey, randomly choosing from a list of stocks to buy or sell. 

Here’s what they found: when buying stocks, these kings of finance (the elite investors) far outperformed that dart-throwing monkey. But a curious thing happened when selling stocks. The king of the treetops (the dart-throwing monkey) outperformed, as the stocks the elite investors chose to sell did better than those they chose to keep.

How could elite investors succeed on one side of a trade but fail on the other?

The economists concluded these elite investors took their time and were highly deliberate when deciding what stocks to buy. Meanwhile, they tended to make reflexive, instinctual decisions when choosing what stocks to sell. It is a real-life example of Daniel Kahneman and Amos Tversky’s dual modes of thought — System 1 (quick, automatic, emotional) and System 2 (slow, deliberate, logical) — popularized by the book, Thinking Fast and Slow. The elite investors used their galaxy brains (System 2) on one side of trade and their lizard brains on the other (System 1). 

Research has proven the poet Walt Whitman right: we contain multitudes. We are vessels of contradictory desires, perspectives and emotions. We are subject to a variety of cognitive biases. In a sense, we are made up of different self states. And this consortium of selves can trip us up when making decisions, from what we order at a restaurant, to what career we pursue, to how we invest money. 

Every individual investment decision, each time you buy or sell, is subject to a multitude of mental forces.

This is why it’s better for most of us, who are saving and investing to achieve financial independence, to take the don’t-put-all-your-eggs-in-one-basket approach known as diversification.

Portfolio diversification — owning a broad mix of asset classes — can help lower overall investment risk without dramatically sacrificing return. At least, that’s what people generally know about diversification. But that’s not what I want to concentrate on here. What I find just as remarkable, and often overlooked, is how diversification works as a mental tool. 

As the study of elite investors shows, human psychology is not easily separated from money, even when you’re paid to do just that. 

Diversifying your portfolio not only helps you manage investment risk, but also manage yourself/selves. You reduce the chances of making bad decisions. Essentially, you can dilute the influence of conflicting modes of thinking by owning a variety of different assets. Put simply: We contain multitudes, so we should invest in multitudes. 

Here are three psychological reasons why:

When diversified, you are detached from the powers of greed and fear

If financial markets are driven by greed and fear, which wins today or tomorrow? Will markets rise or fall? Is it better to guess, or to simply not care?

Greed and fear are most acute among individual stocks, as evidenced by higher volatility. There are near daily events that impact specific companies or industries, to which investors emotionally react. Diversifying your portfolio is a way to sidestep those emotions. 

Think of it this way: If you’re going to own a bit of everything, you can expect your winners to effectively make up for your losers. You are not seeking to buy more of what is rising, nor hurrying to sell what is falling. Instead, you trust the growth of the world financial markets and the law of averages will continue their gradual upward trajectory. 

Therefore, the short-term market changes don’t matter much. Remember, throughout history, the stock market has drawn straight with crooked lines. 

S&P 500 Index – 90 Year Historical Chart

SOURCE: MacroTrends

Diversification helps blunt the impact of cognitive biases

As the Novel Investor’s quilt of asset class returns show, last year’s best performing assets can often become next year’s worst, and vice versa. 

From that 30,000-foot perspective, it’s easy to see betting on a specific asset class is basically a crapshoot. But in the moment, we may experience something different. For one, when deciding where to invest, we may rely on past performance. We may think recent investment trends will influence future performance, a belief known as the gambler’s fallacy. Or, we may fall prey to confirmation bias and look only for evidence that supports the investment decisions we’ve already made. 

Or, at the behest of every financial news story and our Uber driver, we may succumb to herd mentality. When markets consistently hit all-time highs and you read about people becoming millionaires on meme stocks or digital coins with canine mascots, it’s understandable to come away with irrational expectations. 

As Nir Kaissar wrote in a Bloomberg column, a survey found that “U.S. investors expect their portfolios to generate a long-term return of 17.5% a year after inflation”. That far surpasses the expectations of professionals:

That is unrealistic over the long term. His suggestion, of course, is to dispel any notions of anything going to the moon and to temper those outsized expectations by diversifying your portfolio. 

The way I see diversification is that it is a cognitive bias silencer and the ultimate form of investor humility. It is not the path to the highest returns, which is the point. The greater the heights, the greater the fall. You don’t know what’s going to happen anymore than the next person. 

Diversify, and you’ll never fall in love with the status quo

A famous though dubious quote from Henry Ford goes, “If I had asked the people what they wanted, they would have said faster horses.”

By our nature, we are resistant to change. We prefer the safety of the familiar. Which is not necessarily an ideal mindset for an investor, because the fortunes of companies and countries change all the time. If you stick with the rivers and the lakes you’re used to (high five to those who got the song reference!), you may get stuck. 

You could argue that Warren Buffett and Charlie Munger made a colossal mistake waiting to invest in technology. They shied away from investing in technology for a long time because it was something they didn’t understand, as it was outside their “circle of competence.”

But, who can really say what is today’s Kmart and tomorrow’s Tesla? Just look at how the top 10 companies in the S&P 500 changed from 1980 to 2020: 

Rather than sticking with what you know, diversification practically forces you to own — and reap the benefits of — the disruptors that evolve and grow, overtaking the old guard. 

Our contradictions don’t have to rule over our money. Diversification is one way to help become unhindered by our mental flaws. And there’s nothing wrong with admitting our judgments can be flawed. It’s what allows us to find ways to make better decisions. 

If you believe you are not susceptible to cognitive imperfections, let Walt Whitman ask: 

“Have you no thought, O dreamer, that it may be all maya, illusion?”

“Are you the new person drawn toward me?”

The Cost of Friendship

An oak tree can grow to 100 feet tall and live for more than 100 years.

In a mast year, an oak tree can shed as many as 10,000 acorns, hard little squirrel delicacies raining down dozens of feet on your lawn (or head) like tiny missiles.

These are things I learned only after shipping a young oak tree to a best friend and his wife to plant in their yard as a gift to celebrate the announcement of their first baby. I didn’t consider whether they had room for such a large tree or even had the desire to deal with the maintenance. Instead, I only thought about the cost.

How much should you spend on celebrating a friend’s big life events?

The tree came with a copy of the classic children’s book, The Giving Tree, by Shel Silverstein. I sent it as a special way for them to mark the occasion. But truthfully, just like the boy in the book who repeatedly takes from the loving tree for selfish reasons, I also did it for myself. The root of our friendships is just as much about sustaining ourselves as it is about sustaining others.

Which is why I’ve been wondering lately: What is the cost of friendship anyway?

I took an unplanned month-long break from this blog. It was partly due to the demands of my day job and some other projects I’m building. But more so, because I was having so much fun spending time in the company of others again. Nights socializing replaced nights writing.

After not seeing most of my friends in over year because of COVID, there is a sweet sense of carelessness. No one cares if we meet at that overpriced restaurant. Sitting around a backyard fire is good enough reason to drink the expensive stuff.

After all, what are friends for?

A lot.

Why You Should Spend Money on Your Friends

While it is important to identify what expenses you can cut from your budget, it is equally important to identify what you like to joyfully spend money on.

We should never get too hung up on spending time and money on friends. It sounds trite, but it seems necessary to write because fewer and fewer people have them.

Amidst my time rekindling friendships, the most depressing thing I read about is the growing loss of close friendships. Even with all the communication tools literally in our pockets, we are as lonely as ever, according to a study from the Survey Center on American Life.

Back in the day of pay phones, beepers and Zubaz pants (1990), only 3% of Americans said they had no close friends. That figure spiked fourfold over the past 30 years, with 12% of Americans awash in cellphones, social media and Crocs saying they are essentially friendless.

Meanwhile, the number of Americans who said they had 10 or more friends plummeted from 33% to an alarming 13%.

Call it a loneliness pandemic, a pandemic that could also harm people in many ways.

You can see the value of friendship most among older adults. Over the past year, Edward Jones and New Wave conducted a study investigating how retirement attitudes and behaviors were shaped by the pandemic.

After a year of living through lockdowns and the threat of illness or death, 77% of retirees say “having family and friends that care about me” is one of the most essential elements to well-being in retirement, ranking higher than “being financially secure” (59%).

The report also shows how attitudes regarding “success” change with age. Older adults place a higher value on relationships and self-acceptance than wealth or job achievements.

Of course, priorities shift throughout life. But there is something important to take away from those who generally have wealth and the freedom of time but the fewest years left to live. That is: We should be concerned about accumulating friends as much as financial assets.

The report states:

“Social isolation is linked to an increased risk of heart disease, dementia and death; it can be as deadly to one’s health as smoking 15 cigarettes per day.” (Italics mine… just let that sink in for a minute.)

Friendship has been shown to improve our mental, physical and emotional states.

A big study at Harvard spanning 80 years found that the single best predictor of health and happiness was not your wealth or your professional success, it was your close relationships.

Data from the Survey Center on American Life also reveals this basic happiness principle: more friends equals more life satisfaction.

It aligns with what longevity researcher Dan Buettner said to the New York Times:

“I argue that the most powerful thing you can do to add healthy years is to curate your immediate social network… Your group of friends are better than any drug or anti-aging supplement, and will do more for you than just about anything.”

Wealth is a number, but it’s also a feeling. Friendships can make anyone feel like the wealithiest person in the world. Friends make the whole damn mess of life so much more worth it.

As C.S. Lewis writes in The Four Loves:

“Friendship is unnecessary, like philosophy, like art, like the universe itself (for God did not need to create). It has no survival value; rather it is one of those things which give value to survival.”

Every dollar spent should be made with some consideration. But when it comes to spending money on friends or experiences with friends, consider giving yourself more freedom than you would with anything else.

A hard lesson no one wants to learn: all the money you need to become financially independent means nothing, absolutely nothing, if you have no one to spend it with.

In her bestselling memoir, The Top Five Regrets of the Dying, hospice nurse Bronnie Ware says one of those top regrets is, “I wish I had stayed in touch with my friends.”

This is why an important part of any retirement plan isn’t just what you want to do, but also who you want to do it with.

My lucky friend who is now a soon-to-be proud father and involuntary oak tree arborist married his wife in her home country of South Africa. I didn’t go, because I was concerned about the cost while saving for a new home. Fortunately, our friendship remains strong. To this day though I regret not throwing caution to the wind and being a part of that special moment.

Money can come and go. Special moments with friends last forever. Don’t miss them.

You can save and invest for a big house, a fast car, kid’s college fund, whatever. It’s all personal and who am I to tell someone one way or another. Except with this: spend all the money and time on your friends that you can*. This is investment advice, planning advice, saving advice, money advice, life advice (come at me SEC!).

(*Within reason, of course. If someone expects you to spend more than you can reasonably afford, then they’re not really a friend anyway.)

The cost of friendship is whatever it costs to maintain your friendship — and it’s worth it.

Pick up the tab.

Take the trip.

Send an oak tree.

Even if you’re just doing it for your own well-being.