Money: Can you have too much money?

Money: Can you have too much money? Brian Portnoy, Modeling Wealth (September 18, 2024)

Can money buy you happiness? How much money is too much? Does wealth offer diminishing returns? In this edition of At the Money, I sit down with Brian Portnoy to explore these questions.

Full transcript below.

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About this week’s guest:

Brian Portnoy is the founder and CEO of Shaping Wealth, which helps advisors and their clients achieve “funded contentment” and operates as an outsourced Chief Behavioral Officer. Portnoy has held senior investment roles in the hedge fund and mutual fund industry.

For more information, see:

Modeling Bio wealth

LinkedIn

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Transcription

(Music: Because I’m happy. Clap your hands if you feel like you’re in a room without a roof, Because I’m happy, Clap your hands if you feel that happiness is the truth, because I am happy)

Barry Ritholtz: Money does not automatically lead to happiness. Our relationship with money is complicated: talk to anyone at the bottom of the economic ladder and they’ll tell you in no uncertain terms that lack of money can lead to misery; but talk to enough millionaires and billionaires and it’s pretty clear that money doesn’t automatically lead to happiness.

As it turns out, money does buy you a little happiness, but only up to a point. In today’s edition of at the money, we’ll discuss how and why money can bring you happiness.

To help us unpack all of this and what it means for your financial health, let’s bring in Brian Portnoy. He is the author of The Geometry of Wealth: How to Design a Life of Money and Meaning.

We’ll start with a fairly easy question: Does money buy happiness?

Brian Portnoy: Let me give you a very simple, clear answer, yes no, maybe not like that

Barry Ritholtz: Okay, I got it. So you say it’s complicated and it really depends on lots and lots of factors, let’s start really basic with Maslow’s hierarchy of needs: safety, security, food, shelter, etc. Obviously, if you don’t have those things, lack of money will surely bring misery

Brian Portnoy: So this is exactly the place to start. Let’s talk about eliminating misery, different from achieving happiness, there is no doubt that the most powerful impact of money on our emotional life, our physical life is eliminating misery, so we are made to survive that is our evolutionary story and money buys us shelter buys us food buys us warmth buys us safety on a higher level can allow us to escape aggravation or certain people you don’t want to see or certain commutes we don’t want to be able to think of money as a way to alleviate or even eliminate sadness, disappointment and misery, which is by far the strongest relationship between money and a certain emotional state

Barry Ritholtz: So I’ve seen some studies that look at where money stops buying contentment so to speak and I know these are all from different eras and so they may not be inflation adjusted numbers but one study says that it peaks around 70,000 and then starts to roll off, which seems like in America that buys you shelter, food, clothing, medical care and maybe even some education, and then we saw 300,000 and 500,000 where the marginal utility of each dollar won start to count less and less?

Brian Portnoy: So you’ve pinpointed a number of studies on this and maybe it’s 75,000 or 90,000, I would also point out that a dollar spent in Manhattan NY versus Manhattan KS, those are very different conversations.

However, let me jump in first and say that there are two different definitions of happiness that we should make sure that one is kind of everyday: good mood, bad mood considering positive emotions. The other kind of happiness that goes back to Aristotle, what he called “Eudaemonia” is a deeper source of meaning and contentment because it relates to the first definition of happiness, you’re right, there have been studies after studies that show that once you you can afford the basics in Life having that marginal dollar won’t necessarily put you in a good or bad mood, you’re kind of wired with a certain mood you know and if you’re a generally cheerful person you’ll be like that and if you’re generally some kind of dowry or crap, making hundreds of thousands of dollars a year, you’re not going to make an impact.

I would go to the second definition of what we call happiness, it is a difficult word, go to the thesaurus, there are thirty different words for this, but we will talk about everyday happiness versus “contentment”. Aristotle called it “Eudaimonia” and there is some interesting research from Danny Kahneman and Angus Deaton showing that if spent wisely, money can ensure a meaningful life and there are different sources of meaning in our lives. When spent wisely on certain types of experiences and relationships, money can be effectively used to lead a happier and better life

Barry Ritholtz: Let’s talk a little about other people, there’s a famous quote by HL Mencken, when they asked how you define wealth and his answer was $100 more than my brother-in-law. There are other studies that have asked people, would you rather make these numbers up, but they’re $60,000 when you live in a city where everyone else has $50,000, or would you rather have $200,000 in a city where everyone else has $300,000. I know what I’d pick, I’d take the latter, but that doesn’t seem to be the answer most people give. They say I’d rather be the richest guy in town at 60 grand than the poorest guy in town at 100 grand. Why is that? Explain why that behavior and belief system exists and what it means for our satisfaction

Brian Portnoy: Welcome to the human condition. Welcome to the evolutionary path I’ve been on. Status matters, tribe matters and these are not trivial things, these are genetic codes deep down that we all live with and so when we have a little more than others we feel better than ourselves and so you are absolutely right studies i do shows and I don’t have the exact numbers that people would rather have an income of $100,000 when others make $80,000 versus $150,000 when others make $200,000 a year.

You and I might say I’d prefer one over the other, but the truth is that the preponderance of answers reflect that we want to feel connected to our tribe and safe in our tribe, and when you have a little more of others it can make you you feel pretty good go quote for quote you gave me HL Menken I give you the original JP Morgan he said nothing corrupts your financial judgment more than the sight of your neighbor getting rich

Barry Ritholtz: I have a very vivid memory of the early days of house swaps in the 2000s leading up to the GFC, and the early days of crypto. I can’t tell you how many times I’ve heard people say “My neighbor makes all this money and this guy’s an idiot”, it’s almost like adding insult to injury – what does it mean to see someone else make a lot of money that doesn’t causes envy and greed to run?

Brian Portnoy: I don’t know whether to quote neuroscience or the Bible (Go both ways, I bet they’re related). They are, they are. You talk about who we are as a human species – we can’t help but feel envy or greed when others have more. I don’t know if we need to provide a dissertation or quotes from the Bible to show why this is true; we just know that when others are moving forward, we feel like we’re falling behind.

It is very important from a financial wellness perspective that people have their own authentic goals, hopefully integrated into some form of financial plan. So you feel like you’re making progress toward the things you said mattered to you and your loved ones. That can be used to mitigate some of these negative emotional impacts, when they’re just like, I’m at the casino, I bet on black, he bet on red, he won, he’s rich, I’m not, and you don’t feel too good about you

That it’s not a great way to go about your financial life

Barry Ritholtz: So let’s tie this in, given the difference between the pursuit of happiness and the pursuit of contentment, what this means for how investors should think about pursuing earnings in their portfolios.

Brian Portnoy: Investing outside of a well-defined financial plan is speculation. And that might not necessarily be a bad thing, you know you like to pick stocks, I haven’t started on a trading desk, but look, I deal with market timing, but that’s just outside of the pros, it’s just in my own stupidity. yeah you can’t personal account OK so I’ll start and by the way that 2% of my assets scratches such an itch. I can’t begin to tell you that yes, that’s why we advise advisors to always allow some clients to have cowboy accounts, absolutely you We will manage 97% of your assets 3% to disclose buy cryptocurrency all these things and

Barry Ritholtz: One of the funny things is with accounts like this is if they go to zero who cares about 2% of your assets and if it triples, hey they tripled because it was 2% if it was actually all your money which you would never have been able to last so long. (that’s right) You would have taken God, I’m up 30%, I need to take some profits.

Brian Portnoy: And by the way, there’s nothing wrong with being interested in the stock or bond market or crypto or any other market and see if you can provide, bring your knowledge of better stock picking or better results good

However, if we really think about the relationship between money and happiness when you have a well-defined plan, it means that you are heading towards something that could be your children’s college education, it could be a comfortable situation.

It could be a comfortable retirement, it could be a particular vacation you have in mind, so you pick your goal and invest accordingly. You build a portfolio, you have time horizons, you have risk tolerance, it’s not as sexy or challenging as playing the markets, so to speak, but the conversation about money and happiness actually makes a lot more sense in the context of some well-defined objectives. and the other stuff is kind of fun, but let’s face it, it’s not investment, it’s speculation.

Brian Portnoy: Thanks Brian, that’s very interesting. You know this idea of ​​money buying happiness comes up all the time in conversations with clients, friends and family.

I always like to lead by example the opposite of money that leads to satisfaction and contentment – something I call purposeless capital. Bill Huang ran the hedge fund Archegos Capital Management and very famously they took a billion dollar stake using leverage and very aggressive trading to $20 billion before it finally blew up. I’ve always suspected that part of the reason it happened was because this was ‘Capital without a purpose’ – there was no intention behind it, there was no plan to fulfill certain life goals or provide money philanthropy, to build experiences with family. It was just more for more’s sake.

As we’ve learned over time, more money doesn’t always buy happiness, but if used correctly, it can buy experiences that you can help others and bring a lifetime of funded contentment if applied correctly.