At the Money: Can You Have Too Much Money? Brian Portnoy, Shaping 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 founder and CEO of Shaping Wealth, which helps advisors and their clients to achieve “funded contentment,” and operates as an outsourced Chief Behavioral Officer. Portnoy has held senior investment roles throughout the hedge fund and mutual fund industries.
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Transcript
[Music: Because I’m happy. Clap along if you feel like a room without a roof, Because I’m happy, Clap along if you feel like happiness is the truth, Because I’m happy]
Barry Ritholtz: Money doesn’t automatically lead to happiness. Our relationship with money is complicated: Speak to someone at the bottom of the economic ladder and they will tell you in no uncertain terms that a lack of money can lead to misery; but speak to enough millionaires and billionaires and it’s pretty clear that money doesn’t automatically lead to happiness.
As it turns out, Money buys you a little bit of happiness, but only up to a point. On today’s edition of at the money, we’re going to discuss how and why money can buy 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 Shape a Life of Money and Meaning.”
We’ll start with an easy enough question does money buy happiness?
Brian Portnoy: Let me give you a very simple clear answer yes no maybe sort of not really kind of
Barry Ritholtz: OK, I get that. So you’re saying it’s complicated and it really depends on a lot of a lot of factors let’s start really basic with Maslow’s hierarchy of needs: Safety, security, food, shelter, et cetera. Obviously if you don’t have those things lack of money is certainly going to bring misery
Brian Portnoy: So that’s exactly the right place to start let’s talk about the elimination of misery as distinct from the achievement of happiness there’s no doubt that money’s most powerful impact on our emotional lives our physical lives is the elimination of misery so we’re built to to survive that’s our evolutionary story and money buys us shelter it buys us food it buys us warmth it buys us safety at a higher level it can allow us to afford getting rid of aggravation or certain people you don’t want to see or certain commutes you don’t want to make we can think of money as a way to mitigate or even eliminate sadness disappointment and misery that is by far the most powerful relationship between money and a particular emotional state
Barry Ritholtz: So I’ve seen a couple of studies that look at where does money stop buying contentment so to speak and I I know these are all from different eras and so they may not be inflation adjusted numbers but one study says it peaks around 70K and then starts to roll off that seems like in America that buys you shelter food clothing health care and maybe even some education then I’ve seen 300,000 and 500,000 where does the marginal utility of each earned dollar really begin to matter less and less?
Brian Portnoy: So you’ve pointed accurately to a number of studies on this and maybe it’s 75,000 or 90,000 I’d also point out that a dollar spent in Manhattan NY versus Manhattan KS those are very different conversations.
Let me intervene first though and say there’s two different definitions of happiness that we should make sure are clear one is sort of just the day-to-day: Good mood, bad mood having you know positive emotions. The other sort of happiness going back to Aristotle what he called “Eudemonia” is a deeper source of meaning and contentment as it relates to the first definition of happiness you are correct there’s been study after study that shows that once you can afford the basics in life having that marginal dollar isn’t necessarily going to put you in a good mood or a bad mood you’re sort of wired with a certain you know disposition and if you’re a generally cheerful person you’re going to be that way and if you’re generally kind of dower or miserable well making hundreds of thousands of dollars a year aren’t going to make an impact.
I’d go to the second definition of what we call happiness it’s a it’s a difficult word you go to the thesaurus there’s thirty different words for this thing but we’re going to talk about day-to-day happiness versus “Contentment” what Aristotle called “Eudaimonia” and there’s some interesting research from Danny Kahneman and Angus Deaton that shows that if spent wisely, money can underwrite 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 very much be used effectively to lead a happier, better life
Barry Ritholtz: Let’s talk a little bit about other people there’s a famous HL Mencken quote was once they asked how do you define wealth and his answer was $100 more than my brother-in-law. There’s other studies that have asked people would you rather I’m making up these numbers but they’re ballpark $60,000 when you live in a town when everybody else has $50,000 or would you prefer $200,000 in a town where everybody else has $300,000. I know what I would choose I would take the latter but that doesn’t seem to be the answer that most people give. They say well I’d rather be the wealthiest guy in town at 60K than the poorest guy in town, at 100K. Why is that? Explain why that behavior and belief system exist and what does that mean for our satisfaction
Brian Portnoy: Welcome to the human condition. Welcome to the evolutionary path that we’ve been on. Status matters, tribe matters, and these aren’t trivial things these are deep down genetic codes that we all live with and so when we have a little bit more than others we feel better than ourselves and so you’re absolutely right the studies do show and I don’t have the exact numbers that people would rather have $100,000 income when others are making $80k versus $150,000 income when others are making $200,000 a year.
You and I might say well I’d prefer one versus the other, but the fact is that the preponderance of responses reflect the fact that we want to feel connected to our tribe and safe in our tribe and when you have a little bit more than others it can make you feel pretty good go quote for quote you gave me H.L. Menken I’ll 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 recollection in in the early days of house flipping in the 2000s leading up to the GFC, and in the early days of crypto. I can’t tell you how often I’ve heard people say “My neighbor is making all this money and that guy’s a moron,” it’s almost as if it’s insult to injury — what is it about seeing somebody else make a lot of money that gets our envy and greed buttons running?
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 speak to kind of who we are as a human species – there there’s no getting around the fact that we feel envy or greed when others have more. I don’t know if we need to provide a dissertation or Bible quotes to show why that’s true; we just know that when others are getting ahead, we feel like we’re falling behind.
It’s really important from a financial well-being point of view for people to have their own individual authentic goals hopefully baked into some form of a financial plan. So you feel like you’re making progress toward the things that you’ve said matter to you and your loved ones. That can be used to mitigate some of these negative emotional impacts, when it’s 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 very good about yourself.
That that’s not a great way to work your way through your financial life
Barry Ritholtz: So let’s tie this together given the difference between the pursuit of happiness and the pursuit of contentment what does this mean for how investors should think about pursuing gains 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 not anymore I started began on a trading desk but look I take around with market timing is what I do but that’s just outside of professional that’s just in my own little stupid yeah you can’t personal account OK so I’ll start and by the way that that 2% of my assets scratches such an itch. I can’t begin to tell you yeah that’s why we advise advisors to always allow some clients to have cowboy accounts absolutely you We’ll manage 97% of your assets 3% go wild buy crypto all this stuff and
Barry Ritholtz: One of the funny things are is with those sort of accounts is if they go to zero who cares with 2% of your assets and if they triple hey they tripled because it was 2% if it was actually all your money you would never have been able to hold on that long. [that’s right] You would have taken Oh my God I’m up 30% I gotta take some profits.
Brian Portnoy: And by the way there’s nothing wrong with being interested in the stock or bond market or in crypto or in any other market and seeing if you can deliver bring your insight into picking better securities or better outcomes.
However if we’re really thinking about the relationship between money and happiness when you have a well defined plan it means that you’re heading towards something it could be your kids college education it could be a comfortable
It could be a comfortable retirement, it could be a particular vacation that you have in mind, so you pick your goal and you invest accordingly. You build a portfolio, you have time horizons, you have risk tolerance, it’s not as sexy or as provocative as playing the markets so to speak but the conversation about money and happiness actually makes a lot more sense in the context of having well defined goals and the other stuff is kind of fun but just let’s call it what it is, it’s not investing it’s speculating.
Brian Portnoy: Thanks Brian, that’s really interesting. You know this idea of money buying happiness comes up all the time it comes up in conversations with clients and friends and family.
I always like to point to the example of the opposite of money leading to satisfaction and contentment – something I call purposeless capital. Bill Huang ran the hedge fund Archegos Capital Management and they very famously ran up a stake of a billion dollars using leverage and very aggressive trading up to $20 billion before they ultimately just blew up. I always suspected part of the reason that happened was because this was “Purposeless Capital” – there was no intent behind it, there was no plan to meet certain life goals or give money to philanthropy, build experiences with the family. It was just more for the sake of more.
As we’ve learned over time, more money doesn’t always buy happiness, but if used right it could buy experiences you can help others and it can bring a life of funded contentment if applied correctly
