Pod Insights Masters in Business Team Favorite At the Money: How Much Money Is Too Much? About this episode Can money buy you happiness? How much money is too much? Does wealth offer diminishing returns? In this edition of At the Money, Barry Ritholtz is joined by Brian Portnoy to explore these questions. Portnoy has held senior investment roles throughout the hedge fund and mutual fund industries. He is also the author of the bestselling books, 'The Geometry of Wealth' and 'The Investors Paradox.'
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0:00 Speaker 00 At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.
0:31 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
1:13 Speaker 01 and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.
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2:40 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. And 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
3:24 Barry Ritholtz? Portnoy. He is the author of The Geometry of Wealth: How to Shape a Life of Money and Meaning. Okay, we'll start with an easy enough question. Does money buy happiness?
3:35 Speaker 05 Let me give you a very simple, clear answer. Yes, no, maybe, sort of, not really, kind of.
3:43 Barry Ritholtz? Okay, I get that. So you're saying it's complicated, and it really depends on 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.
4:05 Speaker 05 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 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,
4:50 Speaker 05 and misery. That is by far the most powerful relationship between money and a particular emotional state.
4:58 Barry Ritholtz? So I've seen a couple of studies that look at where does money stop 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 it peaks around 70K and then starts to roll off. That seems like in America, that buys you shelter, food, clothing, healthcare, 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?
5:33 Speaker 05 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, New York versus Manhattan, Kansas, 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 eudaimonia, is a deeper source of meaning and contentment. As it relates to the first definition of happiness, you are correct. There's been study
6:13 Speaker 05 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 disposition. And if you're a generally cheerful person, you're going to be that way. And if you're generally kind of dour 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 difficult word. You go to the thesaurus. There's 30 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
6:58 Speaker 05 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.
7:16 Barry Ritholtz? So let's talk a little bit about other people. There's a famous H.L. Mencken quote was once 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 have, 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
8:00 Barry Ritholtz? than the poorest guy in town at 100K. Why is that? Explain why that behavior and belief system exists? And what does that mean for our satisfaction?
8:12 Speaker 05 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
8:23 Speaker 05 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, but people would rather have $100,000 income when others are making 80 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,
9:04 Speaker 05 you gave me H. L. Macon. I'll give you the original J. P. Morgan. He said, nothing corrupts your financial judgment more than the sight of your neighbor getting rich.
9:13 Barry Ritholtz? Especially if your neighbor's an idiot, right?
9:15 Speaker 05 Or if your neighbor's J. P. Morgan.
9:16 Barry Ritholtz? I have a very vivid recollection in in the early days of house flipping in the 2000s, leading up to that, and 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?
9:45 Speaker 05 Yeah, so I don't know whether to quote neuroscience or the Bible.
9:48 Barry Ritholtz? Go both ways. Because I bet they're related.
9:51 Speaker 05 They are. They are. You know, they both speak to kind of who we are as a human species. There's no getting around the fact that we feel envy or greed when others have more. I mean, 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 that You feel like you're making progress toward the things that you've said matter to you and
10:31 Speaker 05 your loved ones that can be used to mitigate some of these negative emotional impacts when it's just like, oh, 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's not a great way to work your way through your financial life.
10:50 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?
11:04 Speaker 05 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.
11:14 Barry Ritholtz? I don't. Not anymore. I started, began on a trading desk.
11:17 Speaker 05 You gave me a look.
11:18 Barry Ritholtz? 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.
11:26 Speaker 05 Yeah, you gamble.
11:27 Barry Ritholtz? Personal account.
11:28 Speaker 05 Okay, so I'll start.
11:29 Barry Ritholtz? And by the way, that 2% of my assets scratches such an itch, I can't begin to tell you.
11:36 Speaker 05 Yeah, it's why we advise advisors to allow some clients to have cowboy accounts.
11:40 Barry Ritholtz? Yeah, absolutely.
11:41 Speaker 05 Hey, we'll manage 97% of your assets. 3% go wild, buy crypto, all this stuff.
11:47 Barry Ritholtz? And one of the funny things are is with those sort of accounts is if they go to zero, who cares? It was 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.
12:02 Speaker 05 That's right.
12:03 Barry Ritholtz? You would have taken, oh, my God, I'm up 30%. I gotta, I gotta take some profits.
12:07 Speaker 05 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 kid's college education. 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.
12:50 Speaker 05 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, it's kind of fun. But just let's call it what it is. It's not investing, it's speculating.
13:11 Barry Ritholtz? 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. And 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 few billion dollars using leverage and very aggressive trading, up to $20 billion before they ultimately just blew up. And I always suspected part of the reason that happened was because this was purposeless
13:56 Barry Ritholtz? capital. There was no intent behind it. There was no plan to meet certain life goals, give money to philanthropy, build experiences with the family. It was just more for the sake of more. And as we've learned over time, sure, 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. You can listen to At the Money every week. Find it in our Masters in Business feed at Bloomberg.com, Apple Podcasts, and Spotify.
14:38 Barry Ritholtz? Each week, we'll be here to discuss the issues that matter most to you as an investor. I'm Barry Ritholtz. You've been listening to At the Money on Bloomberg Radio.
14:59 Speaker 00 At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.
15:31 Speaker 01 This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting
16:13 Speaker 01 and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.
16:54 Speaker 06 Empower is all about helping you invest well so you can go out and live a little. And their free Empower Personal Dashboard shows you your full financial life in one place. You'll be able to see your net worth, monitor budgets, analyze your portfolio, set retirement goals, and more. Whether you're saving for something big, want to treat yourself, friends, or family, or meet long-term goals, Empower helps you see where you stand. You've worked hard for your money, and Empower can help you make the most of it. Download the Empower Personal Dashboard or visit empower.com. Not an Empower client paid or sponsored.
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