The Richer You Get, The Easier It Is To Imagine Something Better

0:00This podcast was sponsored by Stay Calm, a new book by David Booth. If you like the psychology and money, I think you'll like Stay Calm. I've been reading it, and a lot of what David shares really resonates with how I think about money and investing. The importance of time in the market versus timing the market, the power of human ingenuity, and learning how to manage uncertainty. David distills 50 years of insights from a successful investing career. He worked on the first index funds, he founded Dimensional Fund Advisors, and the University of Chicago Business School is named after him. I've read a ton of financial books, many of them feel complicated, this is not one of those. The writing is clear, the lessons are clear, there's a lot of great stories, it's a practical book that can help you feel calmer and more confident about investing. For more information visit Stay Calm Investing.com. So I went on this kick, I don't know, four or five years ago, where I wanted to read as much and learn as much as I could about what I think is the coolest saying humans have ever done, which is walked on the moon in the 1960s.

1:00Hard to think of anything that the species has ever done ever, or maybe will ever do, that was more amazing than that. And part of what I really wanted to understand was, what was it like for the astronaut, what was going through their heads as they're doing that, as they're walking on the moon doing the coolest thing ever? It must have been the coolest experience ever. And when you really dig into it, their accounts, their interviews of what it was like doing it, it's almost disappointing. About how little fun or excitement or awe they seem to experience. Part of this was because NASA selected astronauts who were intentionally by design unemotional about things. That was how you got an astronaut who was not going to panic when something went wrong. So part of it was the people that they selected. But there's some really interesting accounts. During the first trip to the moon on Apollo 11, as they were circling around the moon, Michael Collins, one of the astronauts on that mission, turned to Neil Armstrong and Buzz Aldrin. And he said, I want to read it to you here.

2:00He said, it's amazing how quickly you adapt. It doesn't seem weird at all to me to look out there and see the moon going by. It was like, they go to the moon, he looks out and he's like, yes, so what, there's the moon. You got used to it in three seconds, three months later on Apollo 12, astronaut Albein walked on the moon, and he turned to his other fellow astronaut, as he was Pete Conrad, and he said, it's kind of like the song. Is that all there is? And the other astronaut, Pete Conrad, was relieved because he described his moonwalk himself as spectacular, but not momentous. And so I think to me that's the ultimate reminder, maybe the starkest example that exists, that so much of the thrill of doing something comes from anticipation. But actually experiencing it first hand tends to relatively fall flat from how much joy you got from thinking about the thing. And people have been talking about this, writing about this for a long time. For a lot of people anticipating your vacation is more enjoyable than being on vacation.

3:05Because when you're anticipating it, you imagine a world where everything is perfect, where everything's going right and you're just filled with joy. But when you're actually experiencing it, you're like, oh, I'm jet lagged and I'm hungry and there's sunscreen in my eyes and that person next to me is being loud. Like, once you put all of that context together, it's not as great as you once thought it would be. And so there's two points that I want to bring up here related to this topic. One is this irony, I think, that the better life becomes for you, the easier it is to imagine life being better. Like for someone who has an abject poverty, what they dream about is adequate food and shelter. That's the dream that they are anticipating. That's the goal that they want to get to. If someone is wealthy, what they dream about is an unbelievably extravagant lifestyle. Like the richer you get, the steeper the curve of your ambitions get. And that's true for a lot of fields. There's that famous saying, appetite comes from eating. Like once you taste really good food, you're like, oh, I didn't think I was hungry before, but I'll eat a lot of that.

4:07Appity comes from eating. I think with wealth, ambition comes from success. It's this weird thing. And because of that, if we're fortunate enough to live in a world where most people listening to this are doing pretty well, at least better than most people in the world, your ambition can grow much faster than your income. And this is that's the core of so much what we talk about, which is by any definition, we are living in the grandest of times. And yet, if you talk to people, see how they're doing, how they're enjoying life, is it any different than it was 30 years ago when we were poor by many accounts? I think the answer is probably not. The other point is that it is very easy, so easy to look at other people with a sense of envy or jealousy because you assume they're having more fun than they are. It's very easy to look at someone and say, oh, if I had their house, my life would be great. If I had their car, my life would be great. They went on a vacation that if I went on, I would be so happy. And maybe that's true. Some people do have much more enjoyable lives than others, but it's too easy to look at

5:08someone's experiences, like someone walking on the moon and say, that would be a joy that I could not, I can't even fathom how much fun that would be. But if you talked to the people who actually did it, it's not that grand. And so this gets back to the point of the definition of having enough is when your expectations finally grow slower than your income. I want a dream. I have goals. I think dreaming is great and it's the seed of most progress. And I also find a lot of actual joy, what does make me happy is when you can get to a point in life when you sit back and say, maybe I don't need any more than I have right now. And it forces you to start thinking about getting your joy from the things that you already have right now. Rather than dreaming about the life that you're going to have in the future, be like, man, going for a walk with fresh air and sleeping in when you can and spending the time with the people you enjoy, that's the ultimate wealth. That's where I want to be. All right, let me get into your questions and please send more of your questions to

6:10pod at longtermwords.com. Your questions have been great. I have a lot of them to dig through, but I always want more. So send them in POD at longtermwords.com. First question is from Carl, who has a wonderful question that I love. He says, for businesses, why do people only care about profits? That's what's left over after expenses. But for people, they only focus on how much you earn, not on how much you save. After what you spent. That is such a thoughtful question and I loved it. And I don't know why people do this. You are so right that if you're thinking about how successful is a business, you say, what was his profits? But if you say, how successful is that person? You say, how much do they earn, which is their revenue? It's a very interesting thing. Part of it might be the point of owning a business from the owners, the shareholders perspective is the profit, whereas the point of being an individual is spending on expenses for yourself. So maybe it does kind of make sense, but you bring up a very important point,

7:10which is that for individuals, wealth is what you don't see. You can maybe see someone's or know someone's earnings without having any idea how well they are doing financially. And there are so many people out there who earn modest incomes, who are doing fantastic and living the life that they want and saving a lot in addition to that. And there are so many other people who might have a big salary and are earning a lot of money and are absolutely struggling to get by paycheck to paycheck if that. And so this was always my definition between rich and wealthy. Rich was you can afford the lifestyle that you want. You can make those payments. Maybe you have a big income. wealthy was the definition of wealthy being you have some level of control and savings within that budget that gives you a big buffer and an amount of independence that you can gain from that wealth. And so I think summarizing that, which is really important, which is I don't care how much money you make. I care how much money you have. Like to me, wealth is much more important than income.

8:12And more important than that, I don't care as much how much you have, as I care how much you need. That's the order. I don't care how much you make, I care how much you have. I don't care how much you have, I care how much you need. And you can maybe see someone's income. You can ask them what their salary is. You can definitely see someone's lifestyle knowing how much they need is almost always completely hidden from view. And it's the single most important thing that's going to determine how well you're doing financially. All right, next question is from Prasad. He says, Morgan, in Western media, interviewers often ask about your 15 to 20% cash buffer. That's a percentage of my net worth that I tend to have in cash, like that for a while. My point he's asking is holding 100% of that money in a single fiat currency like the US dollar introduces risk. And he asks, would it be better if I kept two or three percent of that in something like gold instead? Here's my answer to that because people often ask this question, particularly when they learn that I keep a decent chunk of my net worth in something like cash and they say, isn't that risky because of inflation or if the dollar were to collapse or whatever

9:15it might be? It's very often when someone says, why don't you keep a small amount in gold? And my point tends to be that wouldn't do anything for me. It would be like, what if you insured 2% of your house? And so if your house burned down, this tiny corner of your kitchen is insured. Wouldn't do anything for you. It wouldn't actually provide any protection to have 2 or 3% of your net worth in gold. A lot of this is if you read the history of actual hyperinflation, and by the way, I do not think hyperinflation is at all any kind of legitimate risk that has a decent chance of happening in the United States. Everything could happen. It's not something that I lose a lot of sleep over. But read about the history of countries that have experienced hyperinflation, your gold is not going to do much for you. Because what happens in countries that are experiencing hyperinflation is societal collapse. And therefore you have things like, there's no food on the shelves. Your gold is not going to do much to buy. Society collapses not just the financial situation.

10:15So in a true risky situation, almost nothing except maybe ammunition and penicillin is going to do that much for you in those situations. A much bigger point that I want to make though is this, when people ask, is it risky that I have so much of that money in cash, risky for inflation? My answer would be, yeah. And that's life. I think the people who actually take the biggest risk in finances are the people who think that they have reduced all the risks. They think that they have a portfolio that says anything that can happen, I'm prepared for it. And it's not going to do any damage to me. Those are the people who are actually putting themselves in jeopardy. Because risk is what is left over when you think you've thought of everything. If you think in your mind that you have banished all risk from your life, you are going to be shocked beyond belief when a risk inevitably hits you. And I think the biggest hedge that you can have in your finances is not gold or crypto or insurance or whatever it might be. It's a mentality and an attitude of absorbing and expecting risks that you can't even envision.

11:16So I don't want this to sound flippant. But what would happen if let's say there is a ton of inflation and the value of the cash that I hold falls by half? I don't expect that to happen, but let's say that it does happen. What would I do? And the answer is not that much. I would maybe instead of traveling and going vacation, I would take my dog for more walks or read more books or whatever it might be. I think that's the hedge that people need to have in life. Because the ability to absorb and expect and deal with risk rather than fooling yourself to think that you have banished it from your portfolio to begin with. All right, next question. This one's from Sandy. She asks, what are you finding the most interesting thing about human psychology and finances and more specifically about investing between people from the United States and the rest of the world? I do lots of talks all over the world. I think I'll speak in eight countries this year. And it's always so fascinating to me to see the differences, particularly investing cultures. You can see the difference in food cultures, religious cultures, that kind of thing.

12:18The difference in investing cultures is so, so stark. If you compare the United States to most of Europe or Asia or South America, completely different in a field like finance that we pretend is like a science. And so one of the things that I think has always been true about American culture, and this has been true for hundreds of years, is that Americans tend to be very, so optimistic that they are willing to believe things that are obviously not true. And I think again, that's been true for hundreds of years. But like the dawning of America when a lot of Europeans were told it was like a magical land flowing with rivers of gold and they got here and it was like a malaria swamp. I think this has always been true. It's always been the land of you can believe anything you want. And I think that's true for a lot of American entrepreneurs and investors. They are just preposterously optimistic relative to the rest of the world. That is of course a risk. A lot of people just take enormous risks and lose their money and do crazy things or their money that they shouldn't. I think it's also an advantage for America because so much of innovation and entrepreneurism

13:20requires that you believe things that at least have not yet been proven if not are putting you way out on the spectrum of very optimistic beliefs. And so of course it's a liability and anyone can list a bunch of things wrong with America as most cultures can be. But I think there is this very unique sliver of the entrepreneurial world in which having that just insane amount of optimism is a very unique part of American investing cultures that in the rest of the world, I think they're, it's not, I wouldn't even say that they're more pessimistic. I think they're more grounded in reality than a lot of Americans tend to be. And that's one of the biggest differences that I see that's always so interesting. All right. So, I think that's the question. This one's anonymous. It says, can people actually change their financial temperament or are they mostly stuck with the personality that they've got? I, here's what I've come to believe with behavioral finance and whether you can actually change. I think for the most part, people cannot change their personality and their temperament

14:21and who they are. And most of the evidence is if you were the kind of person who panicked during the last crash, you're going to panic during the next crash. If you were the kind of person who gets so much joy and thrill from gambling and speculating that's probably just who you are and that's always who you're going to be. And so if you're asking a question, can you change your temperament and personality? I think the unfortunate answer about the realistic answer is probably no. But what I think people can do and I've tried to do for myself is rather than assuming you can change your personality, you can become much more aware of it and aware of where the boundaries are. And most financial mistakes happen when people take actions that would be right for a person of a different personality but not right for them. Most financial mistakes do not come from making bad decisions. It's come from doing something that maybe I could maintain but you couldn't or vice versa. And when you become much more aware of what your personality is and what you're good at and what you're obviously not good at and capable of doing, then you can just embrace

15:22reality with both hands and come closer to the idea of being like, look, I know some people say I should do this but I don't. Back to the question earlier about the 15 to 20% of my portfolio that's in cash, for most people of my age that would be insane. But I and wouldn't make any sense and financial advisors would look at and be like, what are you doing? It makes sense for me. It works for me. The quality of my life would go down if I didn't have that. And that's just who I am. And I can't change that about myself but I can just embrace it. You're the kind of person who has to gamble and speculate. Rather than saying I'm trying to become completely clean, cold turkey, no more of that, maybe you can have 5% of your portfolio where you're day trading bankrupt penny stocks or whatever you're doing. And that scratches the itch rather than assuming you can just ban that side of your brain in which you probably cannot. All right. Next question. This one's from Genevieve. She says, I recently listened to an interview you gave or you mentioned you are doing house renovations. I'm curious how much does improving your home improve your life.

16:22So little background in my wife and I's home ventures over the year. We've purchased three homes. One of them was very old. It was 90 years old. One of them was brand new new construction. And this one was, I don't know, 20 years old when we bought it not too long ago. Before I get into the renovations part because we have done large renovations on two homes. One of the craziest things about the home market that I was thinking about yesterday was take the 90 year old house that we bought that was not in great shape when we bought it. We renovated it but it was a 90 year old house that had the scars and the warts that a 90 year old house does. And compare that to the brand new new construction had a warranty from the home builder house. It's so stark when you buy a house. If you buy an old house, you walk through and maybe the real estate agent or the owner is like, oh, by the way, that's what we're doing. It's rotten and needs to be replaced. By the way, these things don't work anymore. By the way, the roof is, it's an old house. And you compare that to the brand new house where the builder is like, everything's brand

17:24new and there's a warranty. If it's not absolutely perfect, let me know and I'll come fix it. And the craziest thing in the world is that on like a per square foot basis, those houses are basically the same price. Everyone knows for cars as soon as you drive them off a lot and it's a used car, the car loses 30% of its value. But there's not that much difference between a used house, which is what the majority of them are and a brand new sparkly house. Maybe that makes sense because most of what you're paying for is the dirt and the land. And a lot of people like homes that have a patina and the age in them. They don't want to sparkly new sterile house. But there's a very interesting thing in the home buying market where things that are brand new, cost about the same as things that need a ton of work and are dirty and damaged and rotten and rusted, et cetera, et cetera. That's always been very interesting to me. And that gets into the home renovations, which we've done two of, A, if you've done them yourself for bigger renovations, they're absolute nightmare and they cost twice as much and twice as long as you think they're going to do.

18:25That's always the rule of thumb. To me, what was always interesting from it from just a psychological perspective, I like design and like nice new modern things. But so much of it was, I want my home. I don't want someone else's home. I want it to be mine. I want to live in my kitchen, not someone else's kitchen. I want it to be my bedroom, not someone else's bedroom that lived here before. That was always the psychological urge to do renovations and where I found the most value. And maybe that's wrong. Maybe you're listening to this. You don't agree with that. But that was always the thing. It was like, do these floors need to be replaced? No, but I don't, I wanted to be mine that I picked out kind of thing. And maybe that just gets into so much of the value of the house is having it be your home base. It's your house. It's not someone else's. It belongs to you. That to me has always been the value of it. And that was always kind of my urge to do these crazy renovations. All right. Last, I want to give you a recommendation. And it's a website. I'll tell you the website. I'll include it in the notes too. It's called ordinaryabundance.com.

19:28Ordinaryabundance.com. This was going around the internet the other day. It is so, so great. And what it is is a very simple website that goes through an average ordinary middle-class house. And the features of that house. And then for every feature in the house, it shows old newspaper articles, old magazine clippings, old quotes for people dreaming in the past about having the features of what virtually every house does today. So it'll be in the house and be like, hey, there's lights in the ceiling like every house has. By the way, look at this newspaper article from 1850 or whenever it was for people being like, can you imagine the dream in the future that one day we might have light in a house? It'll go through like the air conditioning that virtually every house now, heating and air conditioning. And it'll show a newspaper article from 100 years ago. It says, can you imagine there might be a day one day in the future when chilled air is coming out of the vents in your house?

20:30And it goes through virtually every item in the house that we think nothing of and take for granted. And it shows that those things that we take for granted were once the unimaginable dreams of even wealthy people in the world. And maybe this comes from a circle from where we started this of a good life is when you enjoy what you have, not necessarily what you are dreaming about, what might be better in the future. And there's so many of us where that life is what you already have right now. And the key to becoming happier is not necessarily having more stuff. It's appreciating what you do right now. Check out the website. I thought it was awesome. And that's it for this week. We'll see you again next time.