Enrich Your Future 39: More Wealth Does Not Give You More Happiness

Andrew Stotz 00:01
Andrew, fellow risk takers, this is your worst podcast host Andrew Stotz from AE Stotz Academy, continuing my discussion with Larry swedroe, who for three decades was the head of Research at Bucha and wealth partners. You can learn more about his story at episode 645, now, Larry stands out because he bridges both the academic and research world and as well as practical investing. Today we're diving into a chapter from his recent book, enrich your future the keys to successful investing. Specifically, we're going to be talking about chapter 39 enough. Larry, take it away.

Larry Swedroe 00:31
Yeah. So this story begins like all the chapters in my book, with a story about an incident, and then I relate it to investing. And the story is one that I read about where Kurt Vonnegut is meeting with his friend Joe Heller, who had invited him to some party of some billionaire out on Long Island, Shelter Island, I think it was. And he's they're walking around in this magnificent estate with tennis courts and pools everything and Heller says to Vonnegut. He says, Kurt, Doesn't it bother you that this guy just, you know, trading on Wall Street doesn't contribute anything to society. You Yeah, so much more than you'll ever make from your best selling, award winning books. And Vonnegut says, No, because I have something he doesn't have and will never have. And hella says, What could that be? Says the knowledge that I have enough, that's an issue that I've always talked to investors about about separating desires from needs. And the interesting story is there's a whole body of research several years ago that looked at happiness factors around the globe. And it turns out that no matter where you live, could be on vanitu Island or Fairbanks Alaska or, you know, out of Mongolia, there's a level of income at which above there people are not any happier. Okay, so the utility of wealth curve looks sort of like an elephant from the side. It goes way up quickly, because when you have nothing, a little bit really improves your life. If you're homeless and someone gives you 25 bucks to go take a shower, get a meal and stuff, boy, that really made you much better off. But once you get to some level of net worth, call it 2 million or 3 million, or whatever the number is for you, you're really, you know, the extra wealth is better than less, but what it does to your incremental level of happiness, just like the elephant's back, flattens out, there's really virtually little or no improvement in your state of well being and happiness. And it turns out that, of course, the number or of income level is different. In Hope, Arkansas, it might be 60,000 a year. In Manhattan, it might be 160,000 a year. And in Thailand, might be 30,000 a year. But once you're above that level, and assuming you have your health right and you know and stuff, it doesn't matter how much your income is. And so the problem is people keep trying to get more, and they take on lots of risk when it may not improve their level of happiness. And therefore they don't need to take so much risk. They can dial down the risk in their portfolio and be much happier, sleep better and not worry about markets and enjoy their life.

Andrew Stotz 04:00
You know, I do. First thing I took out of this is something that I always say to people, because a lot of young people say, I want to get rich in the stock market. And I say, look at the richest people in the world. They're business owners. You know, it's not like, you know, the 500 you know, 500 people on the Forbes 500 list are all stock traders. And I say, Well, they say, Well, look at Warren Buffett, or, you know, George Soros. And I say, Well, you know, they definitely there. There's an angle of that. In the case of Warren Buffett, he's, he's really an investor in businesses. So Warren Berkshire Hathaway is a collection of businesses. If you look at some of these other guys, they've started hedge funds, which are some of the most profitable businesses in the world. And that's a big part. Now, sure they had some good trades and that gave them the money to start those businesses, but that's the first thing I was thinking about when I was reading it. What are your thoughts on that, as far as people thinking that they could get rich in the stock

Larry Swedroe 04:50
market? Well, first of all, I would say there are a far bigger list of people who have built businesses, et cetera. The second thing and more important. Certainly, perhaps, is, I would tell them to look in the mirror and see if they see Warren Buffett or George Soros. That'll answer that question pretty quick. But the most important thing, I think, is that you have to understand that the strategy to get rich, which is to take rich, in some cases, whether it's running a business or investing in the market, but once you have enough, whatever that level is, the strategy to stay rich is entirely different. It's to minimize the risks you need to take while still allowing yourself enough risk in the portfolio to maintain a lifestyle that meets your needs, not your desires. And when you turn needs into our desires into needs, like a woman needs 200 pairs of shoes, or the guy needs a Rolex watch, well now you have to take more risk, and now you may end up eating cat food when you were perfectly well off in the first place.

Andrew Stotz 06:01
And another, another sentence that I read that I just, you know, it made me think a lot was a great irony, is that the very people who have the most ability and willingness to take risks have the least need to take it. And so what you see in that is that the reason why they're taking it, you know, is, is a couple of reasons. Obviously, you talk about their confidence, you know. And when you're successful in business, you build up a confidence level that you can sometimes take in, you will take in pretty much every other area. And so that's one thing I see. It's like a confidence spillover, that you think you should be confident in another area just because you've been successful in one. And I've seen many business owners that sold their businesses, had money and then lost a huge proportion of it because they applied their same level of confidence to investing, and they thought that this is that, you know, their time has come. They got the cash now it's time to really beat the markets, and then all of a sudden they destroy themselves. So that's the one thing I wonder, you know, and you mentioned about having a couple that you met or advised that had went down to 3 million. Maybe you could tell that story, and that would be interesting.

Larry Swedroe 07:07
I was just going to tell that story and wrap this up. I thought so. In 2003 I was consultant to a large investment management firm up in Rochester, Minnesota, where the Mayo Clinic is. Of course, lots of doctors and stuff are there. And I was asked to meet with this couple individually the morning before I was going to give my talk, because they were in what they felt was a desperate situation. And I sat down with them, and here was a couple. We started off trying to get to know them. The guy was, my memory serves, 71 years old at the time, and he had bragged to me that he had worked for 50 years running some business, I think it was a dental practice, manufacturing devices or something, or medical devices anyway, and he had never taken more than like one week vacation in a year, which, you know, I thought was not a good way to live a life when you had made all this money and they Were still sitting with $3 million which I asked them, how much they spent a year, if you work 51 weeks a year, probably not spending a lot of money on vacations and stuff. And they said they never spent more than 100 grand a year. I said, Well, you're in perfectly good shape with a well diversified portfolio. You counting your Social Security, you're going to take out less than 3% a year, and that's you know, you could sit in totally safe treasury bonds and meet that requirement. The problem was, I knew that just three years before, they had had 13 million, and I said to them, if you're only spending 100 grand a year, you clearly didn't need to take any risk. You could have put all your money, or most of it, in a safe portfolio. Why did you take all that risk? Because you had to understand that while you had the opportunity, let's say, to double your money to 26 million, there was the risk it could go down. Right? Would your life have changed in any meaningful way if you had doubled your money instead of losing and he said, No. And I said, you know, well, the obvious answer is you shouldn't have taken the risk. And what was really sad. Their broker had had them all in high tech stocks, which is how he could have collapsed 70% the market is 6040, portfolio was probably down like 30 something like that, which would have meant he still would have had maybe nine or 10 million, not just three. You. Uh so. And I said to him, said, if you knew that could happen, why did you take the risk? And the wife turned to him, punched him hard in the arm and said, I told you. So. You know, I felt bad for this couple. But what better lesson than to understand that when you have enough it's time to take the chips off the table, and

Andrew Stotz 10:20
they are so lucky to be at 3 million. You know, I have a friend of mine who is a businessman, and he sold his business. Made good money from the sale of his business, but he started investing through somebody that basically lost almost all of his money. And he's now, you know, 75 and I just talked to him yesterday, and he's basically living off of his girlfriend. At

Larry Swedroe 10:48
least he's got a girlfriend he can live. He's

Andrew Stotz 10:50
lucky, very, very lucky. I mean, he is a good and sincere man, and, you know, he made a huge mistake, and he didn't end up with 3 million and so I think the lesson that I want to, you know, take away from this too, is this idea that it's not easy if you're a businessman or woman who's used to taking risk and and used to seeing it through those risks and building something great in your business and all that, it's not easy to to think, how Do I reduce the risk in my investment portfolio because you want to. You're naturally a risk taker, and that's the hardest part, you know? Yeah,

Larry Swedroe 11:27
well, the real problem is his lack of financial literacy. If he had financial literacy and read, for example, my books, that situation never would have happened. He would not have allowed some stock broker to exploit him and put him in highly risky assets. He would have known better if he'd read my book. You're a complete guide to a successful and secure retirement. Wouldn't be in that that's the sad reality that people spend far more time watching reality TV shows than they do investing in their own financial

Andrew Stotz 12:02
education. I mean, I would just push back on that, because I do agree that you know education and the key is, you know, and you what you've been teaching through your writing is fantastic. But there's I would tell you, my friend probably read all those books, and he still did it.

Larry Swedroe 12:17
I'll take that bet. I bet he hasn't read a single one of those books. Okay, so let's find out on our next call. We'll see who won the

Andrew Stotz 12:26
bet. Let's do that. Fantastic. All right, you can still be

Larry Swedroe 12:30
right. I know people who have read my books who still go on to make dumb mistakes because they think they're smarter. Yeah,

Andrew Stotz 12:39
I got my homework now I'm, I'm after digging. He may not like it if I ask him a lot of that question, because it's so painful. It is very painful, you know. And it's a reason why this episode is so important, you know? I'd say, So, yep. Um, well, that's why

Larry Swedroe 12:53
we're here, is to help other people and prevent them from making those mistakes, yeah. And

Andrew Stotz 12:58
that's what I when. I always say, when I open up my worst investment in ever podcast, I always say, you know that I'm on a mission to help a million people reduce risk in their lives, and this is one of those discussions. So I want to thank you for this great discussion. And also, I'm looking forward to the next chapter, which is chapter 40, the big rocks, not the big rock and roll, the big rocks. And for listeners out there, we want to keep up with all that Larry's doing, first subscribe to his sub stack and otherwise go to Twitter at Larry swedroe, or you can see him on LinkedIn, and this is your worst podcast host, Andrew Stotz saying, I'll see you on the upside you.