TheGeometryofWealth

HowtoShapeaLifeofMoneyandMeaning

BrianPortnoy

HarrimanHouse

HARRIMANHOUSELTD18CollegeStreetPetersfieldHampshireGU314ADGREATBRITAINTel:+44(0)1730233870Email:enquiries@harriman-house.comWebsite:www.harriman-house.comFirstpublishedinGreatBritainin2018Copyright©BrianPortnoyTherightofBrianPortnoytobeidentifiedastheAuthorhasbeenassertedinaccordancewiththeCopyright,DesignandPatentsAct1988.PaperbackISBN:978-0-85719-671-2

eBookISBN:978-0-85719-672-9

BritishLibraryCataloguinginPublicationDataACIPcataloguerecordforthisbookcanbeobtainedfromtheBritishLibrary.All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by anymeans, electronic,mechanical, photocopying, recording, or otherwisewithout the prior written permission of the Publisher. This book may not be lent, resold, hired out orotherwise disposed of by way of trade in any form of binding or cover other than that in which it ispublishedwithoutthepriorwrittenconsentofthePublisher.Whilsteveryefforthasbeenmade toensure that information in thisbook isaccurate,no liabilitycanbeaccepted for any loss incurred in any way whatsoever by any person relying solely on the informationcontainedherein.NoresponsibilityforlossoccasionedtoanypersonorcorporatebodyactingorrefrainingtoactasaresultofreadingmaterialinthisbookcanbeacceptedbythePublisher,bytheAuthor,orbytheemployersoftheAuthor.

ForTracy,Ben,Zach,andSarah

Donothurry;donotrest.–JohannWolfgangvonGoethe

ContentsAbouttheauthorIntroduction:AStoryAboutThreeShapes

TakingShape1.AloneTogether2.AdaptiveSimplicity

Purpose3.ThePlacesYouMightGo4.WhatMatters5.Yes,NotReally,ItDepends

Priorities6.SettingPriorities7.MakingDecisions

Tactics8.GrayMatter9.FourCorners

Shapeless10.YouAreHereTheGeometryofWealth:RecapAcknowledgements

AbouttheauthorBrianPortnoy,Ph.D.,CFA,istheauthoroftwobooks—TheInvestor’sParadoxand The Geometry of Wealth—which simplify the complex world of money.Bothsuggestthatinanoisyworldachievingsimplicityishardbutworthwhile.CurrentlytheDirectorofInvestmentEducationatVirtusInvestmentPartners,a$100billioninvestmentsolutionsplatform,Brianworkswithfinancialadvisorsand individual investors to make smarter decisions and attain better lifeoutcomes.Forthepasttwodecades,Brianhasworkedinboththemutualfundandhedgefundindustries,includingatMorningstarandMesirowFinancial.Hehas spoken to audiences globally about investment strategy and decision-making, including theU.S.SecuritiesandExchangeCommissionaspartof itsLeading Authors series. Brian earned a doctorate from The University ofChicago, a bachelor’s degree fromTheUniversity ofMichigan, and holds theCharteredFinancialAnalystdesignation.HelivesonthenorthsideofChicagowithhiswifeandthreechildren.

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Introduction:AStoryAboutThreeShapes

“Themapappearstousmorerealthantheland.”–D.H.Lawrence

ONEYBEWILDERS.How to earn it, spend it, save it, and invest it—these are practical,

oftencomplicated,puzzlesweattempttosolvejustabouteveryday.Fewrelishthese tasks, yet there’s no getting around money’s indelible imprint on life’snarrative, generating an array of emotions along the way: Fear, excitement,stress,confusion,envy,boredom,hope,and—yes—happiness.Despiteitsimport,moneyissomethingweallgrapplewithmostlyinprivate.

It’s a Lord Voldemort of topics, feared by most and mentioned by few. It’suncomfortabletodiscusssocially,andrarelyevenwithourpartners,parents,orchildren. The reasons aremany but boil down to the fact that money is bothanalyticallycomplexandemotionallyfraught.Eitherreasonaloneissufficienttostifle inquiryanddiscovery; combined, complicatedand emotionalmake for ahighly-chargedthirdrail.Wedon’ttouchit.Asaresult,wealsoleavelargelyuntouchedthebiggerquestions,theonesthat

go beyond practical matters of salaries, budgets, mortgages, retirement,insurance,andcharity.Thesequestionsexploremoredifficultmatters,requiringdeeperintrospection.Howdoesmoneyfigureintoajoyfullife?Alot,alittle,ornotatall?Canitbuyhappiness,andifsohow?Therelationshipbetweenmoneyandmeaningdefieseasyexplanation.InTheGeometryofWealth, I takeacrackatmakingsenseof itall. Ioffera

planforanyonewhowantstogrowandremainwealthy.Thatjourney,however,doesn’t resemble what many think it will. The path toward wealth is clearlymarked, but only if you’re looking in the right direction.Andwilling to takethreeimportantsteps:

1. Definepurpose:Illuminatetheingredientsforalifewell-lived;2. Setpriorities:Chartafocusedstrategytodotheright things in theright

order;and3. Makedecisions:Employsimplifiedtacticstodrivebetteroutcomes.

At each respective step, we adapt to life’s evolving circumstances, set clearandactionablepriorities,andrenderdifficultdecisionseasierthroughtheactofsimplification. The book attempts to create a seamless narrative I’ve not seenaccomplished elsewhere, as money tends to be addressed either in broadphilosophical termsorwonky technical details.Mostmapsof thisworld chartonlyafractionofthejourney.Webeginbydistinguishing rich fromwealthy.Being rich is having “more.”

Thepushformoreisatreadmillonwhichsatisfactionistypicallyfleeting.Thequest toberichusuallydoesn’tendwheremanyof itssojourners thinkitwill.Wealth, by contrast, is funded contentment. It is the ability to underwrite ameaningfullife—howeveronechoosestodefinethat.Ultimately,Icontendthatwealthisachievableformany,includingthosewhodespairthatitisoutofreach.Here’sthecatch:Wealth,trulydefined,isonlyachievableinthecontextofalifeinwhich purpose and practice are thoughtfully calibrated. In isolation, neitherdeepthoughtsnorlongchecklistsisuptothetask.Tosucceed,clearmindsanddirtyhandsmustworktogether.

BackwardsandforwardsTheGeometry ofWealth is a prequel to an earlier attempt Imade atmakingsenseofmoney.Myfirstbook,TheInvestor’sParadox,startedattheendofthetale,notthebeginning.Itseems,inretrospect,thatIwrotethewrongbookfirst.That effort spoke to the nuances of making good investment decisions,particularlyregardingchoosingtherightmutualfundsorhedgefunds.Whileittook seriously the foibles of human decision-making, it leapfrogged much ofwhat’s most relevant—and frankly, more interesting—about how to achievewealth. It embraced thedetailedmachineryofunpackingcomplex investmentsand building optimal portfolios. It also, unwittingly, borrowed a classiceconomic assumption that each of us is a “utilitymaximizer,” a turgid phrasemeaningthatone’sprimarymotivationismore.Implicitly,itwasabookaboutgettingrich.Ithinkofthingsdifferentlynowadays.Personally,theoldermychildrengrow,

themoreIwonderaboutthelivesthey’llleadinthedecadestocome.Likeanyparent,Iworryaboutwhetherthey’llfindhappinessandfulfillment.Ofcourse,I’mhardlyworriedabout thestocksandbondstheymightownsomeday,butIamconcernedwhether, ina rapidlychangingglobal labormarket, theywillbeabletoaffordthelivestheywanttolive.Givingthemeither“bigpicture”or“in

theweeds”adviceseemsincomplete.Sodoesgivingbothwithoutshowingtheconnectionsbetweenthem.Professionally,myroadfromacademictoinvestorbacktoeducatorandwriter

has revealed a universe that had been formerly out of focus. I now have theprivilegeoftravelingthecountryandspeakingtothousandsoffinancialadvisorsand their clients (people just like you and me) about making better financialdecisions.ThedifferencesamongpeopleImeetaredwarfedbythesimilarities.Nomatterthelifestyle,accent,politics,orfavoritesportsteam,everyoneImeetwantstotakecareoftheirfamilies,remainorgethealthy,begeneroustoothers,enjoytheirhobbies,andexcelatwork.Alltheseconcernsareconnectedtothebiggestquestionofall:AmIgoingto

beokay?Thequestion—notexplicitlyaboutmoney,butonewhichstubbornlysits in its shadow—is posed by everyone from the ultra-wealthy to the just-getting-by,fromtheretireetothejust-getting-started.I’ve come to realize that conventional financial maps are aligned along the

wrong north star. From my vantage, the land—our real journey—looks quitedifferent.It istimetodrawabettermapwithatruercompass.Thisbookisanattempttodojustthat.So,now,let’sstartatthebeginning.

AstoryinthreepartsThe Geometry of Wealth is a story told in three parts, through three basicshapes:Acircle,triangle,andsquare.Theserepresentthejourneyfrompurposetoprioritiestotactics.Eachstephasaprimaryactionassociatedwithit.Thefirstis adaptation. The second is prioritization. The third is simplification. Theframework builds a bridge frommindset to action. The narrative of the bookmoves from themost important to the least, and from themost abstract to themostactionable.TheprinciplethatmotorsusalongtheentirewayiswhatIcall“adaptive simplicity,” a means of both rolling with the punches and cuttingthroughthenoise.

PurposeFundedcontentmentstartswith figuringout thestories thatdefineus.There isnogeneralformulafordiscoveringwhateachofusshouldorcanattachmeaningto.We can find purpose through family, career, community, faith, country, oranyothernumberofpersonalpassionsorinterests.Howyouidentifyorchoosewhatdefinesyouisthemostpersonalofconsiderations.However,theprocessbywhichwenavigatelife’sinevitableupsanddownsis

shared.Thecircleilluminatestheprocessoffiguringitout.Nomatterhowwellplansaresetandexecuted,therewillalwaysbetheneed

to adapt. Adversity can never be avoided entirely. And even when things gowell,progressitselfgenerateschange.Theneedoropportunitytorecalibrate,toredirect our own narrative, happens over and again, and never the exact sameway.Youneverstepinthesamerivertwice,toquoteHeraclitus,socomingtotermswithanadaptiveunderstandingoftheselfismissioncritical.

One part in figuring out this back-and-forth is interrogating the relationshipbetween the two abstract concepts:Money andhappiness.Both are fictions inthe sense that theydon’t exist innature:Theyaren’tdugoutof thegroundorpickedfromatree.Theirdefinitionsandvalueareself-andcollectively-defined.Generally, the relationship between the size of your bank account and your

senseofcontentmentisconflictedbecauseofhowthehumanbrainiswired.Weareeachendowedwithadual-trackbraindrivenbyintuitionandreason.Abasicunderstanding of the brain gives us an edge in understanding the complicatednexusbetweenmoneyandhappiness.Peoplewhohavemoremoneyarenotnecessarilyhappier—thoughsomeare.

If anything,money alleviates sadnessmore than it inspires joy. In day-to-dayliving,beyondamodestincome,moremoneydoesn’thelp.Butresearchrevealsthatthosewholivewithpurposeandembracetheadaptiveselftendtobemorecontent.Inthatcase,money—whenspentwisely—makesapositivedifference.

You’llsoonhavethechancetoformyourowntakeonwhatthecurrentscienceargues,butthismuchistrue:Moneyisaninescapablepartofthejourney.Itnotonlypaysthebills, it’salsoanemotionalscorecard,asocialmarker,andholdsthe potential to underwrite joy or stoke fear. Try as some might, it can’t beignored.

PrioritiesIt’sone thing to imaginea fulfilling life. It’s another toput aplan inplace toachieve it. Crossing from mission to method, a triangle puts in motion threerankedprioritiesfornavigatingourmoneylives.Havingaclear-cuthierarchyofgoals quickly allows us to distinguish themore important tasks and evade thedistractions.

Priorityoneisriskmanagement.Itistoprotectourselvesfromthepotentialforloss,especiallycatastrophe.Inthehumanmind,lossesweighmuchmoreheavilythan gains, so elevating riskmanagement is the right thing to do.This step isabout building the proper mindset, one that values avoiding mistakes overdemonstratingbrilliance.We then plan the everyday flow of our money lives—earning, spending,

saving,andinvesting—bysmartlymappingwhatweownversuswhatweowe.Maintainingsuchascorecardisasimpleexercisewithahugepayoff,foritbotharticulates and inspires balance in our day-to-day routine. It helps to calibratethornyspendingandsavingdecisions.Itclarifiestheconsequenceofimbalance.Oncethat’sinorder,wearewell-positionedtounderwriteanynumberoflife’sexcitingpursuits,todreambig.Inouraspirations,wecanstrikeatoneofbeingmodestbutnotmiserly.Even the rightmindset and a calibrated scorecard are not always enough to

achievefundedcontentment.This,then,iswhereinvestingpersecomesin:Werisk our savings to make more than we would in a riskless bank account.Investingisaseriesofbetsonanunknowablefuture,andthatactiveengagementwithuncertaintytriggerssomeofthebrain’sbuilt-inquirks.I employ a second triangle to bridge from planning priorities to investment

decisions.Three factorsdrivegood investmentoutcomes.The first is ourownbehavior, unquestionably themost important of the three. The human brain ishardwired to make a litany of cognitive and emotional errors. The classicexampleiswhenthemarkettanksandinvestorssellinapanic,lockinginlosses

andthenlatermissingtherebound.Thethingis,we’renotirrational,we’rejusthuman. The importance of our own behavior in directing ourmoney lives, asdistinctfromanunfamiliaritywithfancyfinanceconcepts,isathemethroughoutthebook.

After behavior, it’s the content of one’s overall portfolio that allows us tomanage risk andgrowour capital.Portfoliomanagement focuseson a smallernumber of more impactful decisions. The specific parts that go into theseportfolios—the stocks, bonds, and funds which grab the eye and quicken thepulse—are importantdriversof financialsuccess,butonlywhenunderstood inthepropercontext.

TacticsThesquareapproachestacticaldecision-makingthroughthelensofexpectations.We aim to set reasonable investment expectations for how to navigate themarket’sride,bothintellectuallyandemotionally.Simplification is thesmartpath towardeffectivelymanagingexpectations. In

general terms, met expectations lead to temporary happiness and unmet onesleadtotemporarysadness.Thehumanmindiswiredtoavoidlossesmorethanitistoachievegains,sominimizingregretismoreimportantinthisprocessthanismaximizingfutureupside.Thesquarebreaksinvestmentdecision-makingintofourirreducibleelements.

Thefirstcornerrepresentsthegrowthwehopetoachieve.Estimatingreasonablefuturegainsismoreartthanscience,oratleastrequiresthesomewhatunnaturalactofthinkingintermsofprobabilities.Thesecondcorneristheemotionalpainof achieving those gains, as driven by how jumpy prices are. Volatility canprompt bad decisions. Third, fit captures how additional decisions improve orunderminewhatyoualreadyown.Finally,flexibility—whattechniciansrefertoas liquidity—illuminatesboth thevalue and cost of being able to changeyourmind.Discretionisadouble-edgedsword.

It’s a common perception that finance is a precise science and that moneyquestions, especially related to investing, have a “right” answer. Nope. Thesquare reveals that this game is less complicated and more winnable than itmightappearatfirst.Gettingfromcomplextosimpleisn’teasy,though,whichiswhybeingmethodicalisthekeytounlockingsuccess.

~

If truewealth is the ability to underwrite ameaningful life, however defined,thenthethreeshapesactassignpostsonthepathtogettingthere,movingfrom

purpose topriorities to tactics.Adaptivesimplicity is theengine thatmovesusalongthepath,unifyingourholisticengagementwiththeworldofmoney.Ultimately, we must acknowledge and navigate the eternal tension between

havingenoughandwantingmore.Botharelegitimateevolutionaryinstincts,butin ourminds they sit together uncomfortably, revealing a tenuous relationshipbetween our current and future selves—who we are now and who we willbecome.Wecherishbothpresenceandprogressaseachgalvanizesameaningfullife,albeitindifferentways.Thegoalhereisnottodeclarevictoryonthephilosophers’ancientbattlefield

ofbeingversusbecoming;that’snotpossible.Butwithawarenessofthetension,andperhapssomepreparationandperspectiveformanagingit,wecanstrideinrhythmtowardcontentment.

TAKINGSHAPE

Thepartwherewebegintofigurethingsout

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1.AloneTogether

“For many of us—we silent sufferers who cannot speak about ourfinancialtribulations—itisourlives,notjustourbankaccounts,thatareatrisk.”

–NealGabler

“Nothingissobitterthatacalmmindcannotfindcomfortinit.”–Seneca

MoneylifeONEYCOURSESTHROUGHbothdailydecisionsandgrandcontemplations.Itactsastheoilintheengineofeverydaylife,withoutwhichmetalgrinds

metal. With it, the engine operates, which isn’t to say it drives in the rightdirection.Money life, a term I’ll use many times, has four dimensions: Earning,

spending,saving,andinvesting.

Itstartswithapaycheck.Thephrase“Makingaliving”isheavilyloadedwiththe gravity of holding a job whose first but not sole purpose is to sustainourselves and our families. Absent the ability to earn, the future is dim.Paycheck in hand, we then must figure out how to navigate a vast array ofdecisions.The first and largest batch of decisions relates to spending.Beyondthemonthlybills,thereareconsumptionchoicesthathavegrownmoreandmore

plentiful.The remainderofunspentearnings, ifany,creates theopportunity tosave.Lastly,thereisinvesting,theprocessofputtingourfinancialcapitalatrisktogrowitatahigherratethanwhatitwouldmakesittingincash.Regardlessofincomelevelor inheritedriches, thematrixofourmoneylives iscomplexandstressful.Whileweallsharesimilarconcernsandposesimilarquestions,wedon’tfigure

itoutcollectively.Moneyisanisolated—andisolating—affair.Wefigureitoutonourown.Whatareweallupagainst?Iseethreebroadchallengescurrently:

1. Wehavemorecontroloverourownfinances.2. Wearewiredtomakebadmoneydecisions.3. Wehavelessroomforerror.

I’lladdresseachoftheseinturn.

Thefirstchallenge:You’reincharge—likeitornotThezeitgeistofmoderntimesisdefinedbyadelugeofinformationandchoice,athinningofdeepsocialtiesdespiteunprecedenteddigitalconnectedness,andado-it-yourself approach to just about everything. In our world of lonesomecrowds,weharborgreatdiscretionandresponsibility.1Throughtechnology,wenowhaveitinourgrasp(orsowethink)tobemediamoguls,culinaryexperts,travelagents,medicalpractitioners,meteorologists,instantscholarsof________(chooseaWikipage),and,yes,marketexpertsandportfoliomanagers.Wehavemore autonomy across more domains than ever before.We live in an age ofinformation.Weliveinanageofanxiety.In thedomainofmoney,we’re beingput to the test in unprecedentedways.

Theburdenofmanagingyourlong-termfinancialhealthhasshiftedoverrecentgenerations.Inparticular,thenatureofretirementischanging,innosmallpartdue to the steady demise of the traditional pension plan. There are fewmorepowerful structural forcesdriving the “democratizing”of ourmoney lives andinvestingspecifically.Keepinmindthat“retirement”wasn’treallyathingallthatlongago.Modern

civilizationisseveralthousandyearsold,sotheideatovoluntarilystopworkingat some point and live off of savings and investments is relatively new. Thereason for this is simple: Through most of history, people worked until theydied. And thosewho outlived their human capital relied on traditional family

structures for support. InWilly Wonka and the Chocolate Factory, bedriddenGrandpa Joe and Grandma Josephine weren’t pensioners, nor did they haveSocialSecurityorsomeothergovernment largesse to relyupon; theywere thewardsofCharlieBucket’smom.Starting in 19th century Europe and then later spreading to America,

governments set up social safety nets for aging populations, while employersarrangedbenefitspackagesaimedatsustaining theirworkers inoldage. In theUnited States, for example, a large percentage of the American private andpublicworkforceparticipatedindefinedbenefitplansforagoodportionofthepost-WorldWarIIera. Inpractical terms, that translated toapaycheckfor lifeduringretirement.Over the past few decades, however, these collective retirement plans have

been frozen or shut down altogether. They’ve largely been replaced by do-it-yourselfinvestmentprograms,suchasthe401(k).Sincethe1980s,forexample,workerswithpensionfundcoverageshrunkfrom62%to17%,whilethosewhohadaccessonlyto401(k)plansgrewfrom12%to71%.2Aswe’renowmostlyallresponsibleforourownretirementinvesting,expertshaveconcludedthatthegoldenageofretirementsecurityisover.Our collective confidence in being able to enjoy a comfortable retirement is

low.In2017,only18%ofworkerswere“veryconfident”abouthavingenoughmoney after they stopped working. About one-fourth of Americans are notconfident in a financially secure future, and the balance are somewhere inbetween.3 The questionable future of government benefits further underminesconfidence. Though never designed or intended to be the sole paycheck inretirement,SocialSecurityhasbecomejustthatformillions.Asthesocialsafetynetweathersintoafrayedhammock,thelackofretirement

confidenceisjustified.Thedataonretirementpreparednessaretroubling.Nearly40%ofAmericanworkershavenotsavedforretirement.Letmerepeat:TensofmillionsofAmericansdonothave adime saved for retirement.Slightlymorethan half of workers are currently saving for retirement, but most of themhaven’t saved much: 24% have saved less than $1,000, 47% have less than$25,000 socked away, and 65% have less than $100,000.4 Keep inmind thatevenwheninvestedreasonably,$100,000insavingsprovidesjustafewhundreddollarsamonthinretirementincome.Thisforced-uponresponsibilityforourlong-termfinancialhealthcollideswith

ourgeneraldiscomfortwiththeentiretopicofmoney.Surveyshaveshownthat

moneyisthemostsensitiveoftopics,moresothanotherhotbuttonissues.Wejustdon’tliketalkingaboutit.5“It is such a loaded conversation,” psychologist Daniel Crosby explains.

“Thereissomuchsubtextandhiddenmeaningwrappedupinmoney.Moneyisshorthandforhappiness,power,andpersonalefficacy,soitcanbeveryscary.”6Crosby suggests threemajor reasons that we loathe talking aboutmoney: It’sstressful,it’ssociallytaboo,andmostofusareuneasywithnumbers.Hecitesa2004 American Psychological Association survey showing that 73% ofAmericanssaymoneyisthemoststressfulfactorinlife.Itismorestressfulthandeath,politics,orreligion.7Most of us think that talking about money is: Embarrassing, not classy,

inappropriate,confusing,intimidating,immoral,boring,orsomecombinationofthose. Spouses struggle with honest conversations, adult children and elderlyparentsfindmoneydiscussionspainful,andwerarelytalkto,letaloneeducate,ourchildrenonthematter.Otherstudiesshowmoneyiseitherthefirstorsecondmost important issuebehinddivorce.Manycoupleswouldprefer to talkaboutinfidelities rather than how they handle family finances or howmuchmoneytheyearn.8There’saprettygoodchanceyouknowagreatdealaboutyourbest friend’s

marriage,health,andjob,butclosetonothingabouthisorherfinances.What’syour best friend’s salary? Is he deeply in debt or has he saved enough forretirement?Doeshehaveabudget?AsCrosbysays,“Wecommiseratewithourfriendsaboutnothavingenoughmoney,weletoutcollectivegroansabout theburdens of taxes, and dream together about how to spend fictional lotterywinnings.Butintermsofthemorequotidian,seriousmattersthatformthebasisofouractualfinanciallives,weareconditionedtowardsilence.”Sitting at the root of this predicament of having this uncomfortable control

over our own money is widespread financial illiteracy.9 Take a stab at thefollowingthreequestions:

1. Supposeyouhad$100inasavingsaccountandtheinterestratewas2%peryear.Afterfiveyears,howmuchdoyouthinkyouwouldhaveintheaccountifyouleftthemoneytogrow?(A)Morethan$102.(B)Exactly$102.(C)Lessthan$102.

2. Imagine that the interest rate on your savings accountwas 1%per yearandinflationwas2%peryear.Afteroneyear,howmuchwouldyoube

able to buywith themoney in this account? (A)More than today. (B)Exactlythesame.(C)Lessthantoday.

3. Please tell me whether this statement is true or false: Buying a singlecompany’sstockusuallyprovidesasaferreturnthanastockmutualfund.

The two experts in financial literacywho authored this quiz found that onlyone-thirdofAmericansage50andolderansweredallthreequestionscorrectly.10Only half answered both of the first two questions correctly. Nowonder thatmanagingourownmoneyisnotsomethingmostofusembrace.Butthefactisthatyou’regoingtohaveto.

Thesecondchallenge:YouaredoingitbackwardsThe second problem is even bigger: It’s ourselves. The human brain iswiredwith a host of emotional and cognitive biases, some ofwhich steer us towardmakinglousyfinancialdecisions.Takethemostbasicruleofthegame:Buylow,sellhigh.Ifyoudothis,you

will earnaprofit. It seemspretty straightforward.Alas,wecollectivelydo theopposite:Webuyhighandselllow.11Howcouldthatbe?Theshortansweranchorsonthebrain’sinexorablefocus

onsurvival.Overmanytensofthousandsofyears,evolutionfavoredthosewiththe wherewithal to attack opportunity and retreat from danger. The “fight orflight”instinctispowerfulandimmutable.Abigchallenge,wewillsee,isthatwhen our “old” brains confront modern day financial markets, there’s adisconnect.Thecycleofgreedandfeardetersgoodmoneyoutcomes.Look at the following matrix: When we observe—feel, really—the market

rising,we’recalmandperhapsevenexcitedaswegrowricherandmoresecure.It’satthosetimeswhenwewanttoinvestmore.

When themarket is falling, we feel less secure. Thoughts of loss cloud themind andweworry that thingswill continue to fall.We grow uncomfortableholdingontowhatwealreadyown,andcertainlyaren’tinclinedtobuy.Webuywhenthingsarepricierandstayawaywhentheyarecheaper.Thisisnot“normal”consumerbehavior.Wedon’tsprinttoTargetwhenthey

markupall of theirmerchandise andavoid themallwheneverythinggoesonsale. But that’s exactly how the investment community in aggregate acts.Anyone who has taken Economics 101 knows that when prices rise, demandfalls.Andwhenpricesfall,demandrises.Managingmoneydoesn’toftenworklikethat.Ifthisdoesn’tsoundlikeyou,askyourselfwhetherin2008,whenthemarket

was downmore than 50%, you were calmly seeking to buy stocks that weremassivelymarkeddown.Probablynot.Contrarianinvesting(buyingwhat’soutof favor) and value investing (buyingwhat’s cheap) sound great on paper butrequireanemotionalfortitudethatfewhave.Wecanlookattheactualdataoninvestorbehaviorbeforeandafterthecrash

togetasenseofreal-worldoutcomes.TheimagesimplyshowstheflowsinoroutofU.S.equitymutualfundsinthefiveyearsleadinguptothecrash(2003–2007)andthefiveyearsincludingandfollowingit(2008–2012).12

Asmarkets advanced steadily in themiddle of last decade, investors placedabout$660billionofnewassetsintoU.S.equitymutualfunds.Duringandafterthe crash, they withdrew more than half a trillion dollars, even though therehadn’tbeenabetteropportunity tobuy inmanyyears.Weareourownworstenemy.

Thethirdchallenge:Youdon’thavemuchroomforerrorFinally, current structural changes in global capitalism give us a narrowerrunway to success. The potential returns from both our earnings and ourinvestmentsappearchallenged.

HumancapitalIthasgottenharder tomakeagoodliving.Realwages,onaverage,havebeenstagnantsincethe1970s.Thepotentialforupwardeconomicandsocialmobilityhasbeenstymiedwhilestructuralshiftsingloballabormarketssuggestaweakoutlook forhumancapitaldevelopment.13Ourmoney livesanchoronearningspotential,sothisdynamicisconcerning.One of the key shifts that has become subject to an intense debate is the

consequence of automation in the workplace.14 The consternation over thisaccelerating trend is well-founded. Not only lower-class but middle-class andevenupper-classvocationsarebeingthreatened.Factoryworkersarenowjoinedby accountants, lawyers, doctors, and portfolio managers in this state ofjeopardy.It’snotthattherearen’torwon’tbeexcitingjobsthatpayfabulouslywell.Theissueisthattherewillbefarfewerofthem.

ThinkaboutthefollowingcomparisonfromMartinFord’sRiseoftheRobots.He notes that in 1979, GeneralMotors employed 840,000 people and earnedprofits of about $11 billion.Meanwhile, in 2012, Google employed less than38,000 people and generated profits of nearly $14 billion. In case you’rewondering, these profits are adjusted for inflation.15 So on an apples-to-applesbasis, the labornecessary toproducegreatprofitshasplummeted. In thiscase,there were comparable profits, but fewer than one-twentieth the jobs.Unfortunately,it’snotdifficulttofindcurrentexampleswherecompaniesneedrelativelyfewemployeestoruntheirbusiness.Suchiswhat in1942politicaleconomistJosephSchumpeterfamouslycalled

theprocessofcapitalism’s“creativedestruction,”an ideaeverybitas relevantnowasbackthen.Capitalism,hewrites,“istheprocessofindustrialmutation…that incessantly revolutionizes the economic structure fromwithin, incessantlydestroying the old one, incessantly creating a new one.”16 Change and forcedadaptation, including failed adaptation, is a feature—not abug—ofcapitalism.Schumpetercalledcreativedestructioncapitalism’s“essentialfact.”Fromfrontierfarmstoserverfarms,the“revolution”neverstops.Wherethat

leaves individuals’ attempts at making a good living, or positioning theirchildren todoso, isarguably thedeepestsourceofstress inourcurrentglobalpoliticaleconomy.That’sinnosmallpartbecausethetrendisaffectingnotonlylow-skill/low-wagejobs.Manyserviceprofessionssuchaslawandmedicinearenowseeingastagnationofincomesandthinningranks.Noraremanyofusenteringthistransitionfromapositionofstrength.Many

Americans live in a condition of what writer Neal Gabler calls “financialfragility.”17 Gabler’s 2016 essay in The Atlantic struck a chord because theprivatechallengeshe,aoncesuccessfulwriter,facedweresowidelyshared,yetneverdiscussed.Hewrote,“Ineverspokeaboutmyfinancialtravails,notevenwithmy closest friends—that is, until I came to the realization thatwhatwashappeningtomewasalsohappeningtomillionsofotherAmericans.”AsGablernotes, only 38% of Americans can cover a $1,000 emergency-room visit. HecitesaPewCharitableTrustreportthatindicatedthat55%ofhouseholdsdon’thaveenoughliquidsavingstoreplaceamonth’sworthoflostincome.18

FinancialcapitalIt’snotonlyhardertoearn,andthussave,it’salsoprobablethatinthecomingyears capital markets will deliver lower returns than they have over the pastgeneration.We can’t ignore that from the early 1980s through today, marketreturns—both stocks and bonds—have been outsized relative to long-termhistory.TakealookatthefollowingdatafromglobalthoughtleaderMcKinsey&Co.

In the past 30 years, the real returns (meaning adjusted for inflation) for bothU.S.stocksandbondshavefarexceededlong-termhistoricalaverages.19

Thefourbarstotheleftshowthatforthepast30years,stockshaveoutpacedtheirlong-termhistoricalaverage.Thesetofbarstotherightshowbondshavehadamassivebullrun;they’veearnedtriplethelong-termaverage.Can the next generation of investors achieve comparable results? Unlikely,

especially with bonds. Bond prices go up when interest rates go down, andinterestrateshavefallendramaticallysincetheearly1980s.It’shardtobelievethat interest rates topped 17% around that time. Fed Chairman Paul Volckerattacked that problemaggressively andkick-started the long, steadydecline inthecostofcapital.Thistriggeredthestrongestbullmarketinbondsinhistory.20Now,there’s little juice left in thesqueeze—interestratesarenowquite low,

meaning that there is no chance that future bond returns can match recenthistory.Equitiesaremoreunpredictable,buthistoricallyhighvaluationssuggest

modestlong-termgainsahead.McKinsey’sdataspeaktomutedexpectationsforfuturereturns,asdosomeotherseriousobserverswhoanticipatethatabalancedstockandbondportfoliowilllikelyreturninmid-singledigits.21These lower expectations clash withmore ambitious return targets by some

investorswhoforeseehigh-singleorevendouble-digitannualizedreturnsgoingforward.22 Anything is possible, but these beliefs are unrealistic. Note that a“good” investment is one thatmeets expectations.23Andwhen expectationsofthe future don’t match reality, we end up with dismal outcomes—not onlyfinancially,butemotionally.

~

Here’sasummaryofourpredicaments:

Wehavemoreresponsibilityforourfinanciallivesthaneverbefore.Weareuncomfortabletalkingandlearningaboutmoney.Wearelivingconsiderablylonger,prolongingalloftheseproblems.Ourbrainsarehardwiredtomakelousyfinancialdecisions.An unprecedented amount of information and choice makes decision-makingharder.Manypeoplearefinanciallyfragile.Ourearningsandsavingspotentialislessthanitoncewas.Outsizedinvestmentreturnsareunlikely,sothemarketwillnotsaveus.

This is not a good state of affairs. But as so many of us like to say whenconfrontedwithatoughsituation:Itiswhatitis.Wecarryon.Let’snowseewhatwecandoaboutit.

1.KatieHafner,“ResearchersConfrontanEpidemicofLoneliness,”NewYorkTimes,5September2016.2. According to Ernst & Young (bit.ly/2FtkTOt), 73% of pension plans wereeitherclosedorfrozen.ATowersWatsonanalysisfoundthatonly118Fortune500companies(24%)offeredanytypeofdefinedbenefitplantonewhiresattheendof2013,down from299companies (60%)15yearsprior.Forabrief andclear general treatment of the retirement crisis, see Charles D. Ellis, AliciaHaydock Munnell, and Andrew Eschtruth, Falling Short: The ComingRetirementCrisisandWhattoDoaboutIt(OxfordUniversityPress,2014).3. Employee Benefit Research Institute (EBRI), 2017 Retirement Confidence

Survey,bit.ly/2nK0cYv.4.EBRI2017.5. Chris Taylor, “The Last Taboo: Why nobody talks about money,”Reuters.com,27March2014.6.Daniel Crosby, “WhyDoWeHate to TalkAboutMoney?” 13May 2016,bit.ly/2F2rQs1.7.MagaliRheault,“LackofMoney tops listofAmericans’ financialworries,”Gallup,22July2011.8. Joan D. Atwood, “Couples and Money: The Last Taboo,” The AmericanJournalofFamilyTherapy40(1),2012.9.RonLieber,TheOppositeofSpoiled(HarperCollins,2015).10.Theanswersare:A,C,andFalse.OliviaMitchelandAnnaMariaLusardidesignedthequestions“toshedlightonwhethervariouspopulations‘have thefundamental knowledge of finance needed to function as effective economicdecisionmakers.’”Theyfoundwidespreadilliteracywithinrichcountries,evenamongthehighlyeducated.Seebit.ly/2BOreUI.11.CarlRichards,TheBehaviorGap:SimpleWaystoStopDoingDumbThingswithMoney(Portfolio,2012).12.InvestmentCompanyInstitute,FactBook2016.13.Martin Ford,Rise of the Robots: Technology and the Threat of a JoblessFuture (Basic Books, 2015); Michael Chui, James Manyika, and MehdiMiremadi, “WhereMachinesCanReplaceHumans –AndWhere TheyCan’t(Yet),”McKinseyQuarterly,July2016;DavidIgnatius,“TheBraveNewWorldof Robots and Lost Jobs,”Washington Post, 11 April 2016; Alec Ross, TheIndustriesoftheFuture(Simon&Schuster,2016);JaronLanier,WhoOwnstheFuture?(Simon&Schuster,2013).14.McKinseyGlobalInstitute,“TheDigitalFutureofWork,”July2017.15.Ford,RiseoftheRobots.16. Joseph Schumpeter, Capitalism, Socialism and Democracy (HarperPerennial, 1942); Lawrence Hamtil, “You Can’t Have Creation Without theDestruction,”31March2016,bit.ly/2EQh2xV.17.NealGabler,“TheSecretShameofMiddle-ClassAmericans,”TheAtlantic,May2016.18.MaggieMcGrath,“63%ofAmericansDon’tHaveEnoughtoCovera$500Emergency,”Forbes.com,6January2016.

19.McKinseyGlobalInstitute,“DiminishingReturns:WhyInvestorsMayNeedtoLowerTheirExpectations”(McKinsey&Company,2016).20.From1980through2015,theBarclaysAggregateBondIndexreturned7.8%per year. On long-term capital markets performance, see Elroy Dimson, PaulMarsh, and Mike Staunton, Triumph of the Optimists: 101 Years of GlobalInvestment Returns (Princeton University Press, 2002). See also, “The Low-ReturnWorld,” ElroyDimson, PaulMarsh, andMike Staunton,Credit SuisseGlobalInvestmentReturnsYearbook2013.21. See, for example, the long-term data from Nobel laureate Robert Shiller(www.multpl.com/shiller-pe). In early 2018, Tim Buckley, the CEO ofVanguard, the world’s largest investment firm, suggested that a balanced“60/40”portfolioofstocksandbondswouldreturnbetween4.0%and4.5%peryearinthecomingdecade,bit.ly/2DJAuM4.22.See,forexample,DavidRolley,“InstitutionalInvestorReturnExpectationsCouldBeOverinflated,”NatixisInvestmentManagers,bit.ly/2FXGJtI;andLisaAbramowicz, “5% Is the New 8% for Pension Funds,” BloombergBusinessweek,2August2017.23. Portnoy, The Investor’s Paradox: The Power of Simplicity in a World ofOverwhelmingChoice(St.Martin’sPress,2014).

H

2.AdaptiveSimplicity“Iknowofnomoreencouragingfactthantheunquestionableability

ofmantoelevatehislifebyconsciousendeavor.”

–HenryDavidThoreau

“Ourjobistofindafewintelligentthingstodo,nottokeepupwitheverydamnthingintheworld.”

–CharlieMunger

UMANSAREEXTRAORDINARYproblemsolvers.Ourbrainsandbodieshaveevolvedovermanymillenniatonavigatean

astoundingrangeofenvironments.Humansarethedominantspeciesonearthforgood reasons, including the advanced use of language, the willingness tocooperate, thecreationof storyandmyth,and theability to think forwardandbackwardsthroughtime.Attherootoftheseachievementsisa“dualprocess”mindthathasempowered

billionsofhumanstosurviveandthrive.Inthischapter,Iwanttoexplainwhythe two-part brain is so consequential to the quest forwealth. The formidablepowerofdeliberatethinkingis,aswe’llsee,mitigatedbycertainfactors.That’sokay.Imaginethatwearebeginningtobuildaruggedbutlightweightsystemtodothebestwe’vebeenwiredtodo.MyshorthandforthesystemofmakingsenseofyourmoneylifeiswhatIcall

“adaptivesimplicity.”Itisamindsetthatacceptsthatchangeandcomplexityareunavoidablefeaturesofdailylife,butthenrespondsbyembracingthefrequentchallenge of rollingwith the punches and cutting through the noise.Adaptivesimplicityistheenginethatmovesusalongthepathtowardfundedcontentment.

The two-speed mind Everyone is blessed with a two-speedmind.Atonespeed,weareintuitive.Attheother,wearereasoning.Combined,theyoperatebyfarthemost

complicated organism ever considered—that’s you—mostlywithouteffortorproblem.TheDualProcessTheoryofthebraindistinguishesbetweenwhathasbecome

popularizedas“System1”versus“System2”thinkingbyDanielKahneman,thefatherofbehavioralfinance,orthescienceofmakinggoodmoneydecisions.Inhis magisterial Thinking, Fast and Slow, Kahneman details the relationshipbetween “fast” (System 1) and “slow” (System 2) thinking, which will begenerouslyemployedthroughoutTheGeometryofWealth.Thepowerswitchforthefastbrainisalwayson.Itoperatesautomaticallyand

quickly without our knowing what it is doing.24 Its operations are largelyeffortlessandinvoluntary.Itcan’tbeturnedoff.System 1 is continuously monitoring the environment around us, observing

whatis“normal”andwhatseemsoutofplace.HumansneedtheworldtomakesenseanditisSystem1’scontinuoussurveyofthelandscapewhichmakesthatpossible.Thefastbrainisanovicestoryteller:“Itoffersatacitinterpretationofwhathappenstoyouandaroundyou,linkingthepresentwiththerecentpastandwithexpectationsaboutthenearfuture.”25Ourmodelofhowtheworld“works”isembeddedinSystem1.Most critically, our sense of danger and opportunity is embedded in the fast

brain.The“fightorflight”instinctreflectsthecodingofhundredsofthousandsof years of Homo sapiens’ evolution into our neural networks. The instinctoperates nearly instantaneously, enabling us to avert danger. In a perceivedemergency,thefastbrainshiftsintoitshighestgear.Recallatimewhenyourcarskiddedoutofcontrol.Theactionsyoutooktoredirectthecaroccurredbeforeyou had time to “think” about a response. Likewise, it works to avoid lossesharderthanitdoestoachievegains.Survivalisparamount.26Thefastbrainlovesconsistency.Itisbiasedtoconfirmbeliefsandseepatterns

evenwhentheydon’texist.Itshiesawayfromambiguityanddoubt.Itacceptsgiven categories and isn’t fond of thinking in terms of probability, preferringspecificpredictions.Itanchorsonwhatyoualreadythinkyouknowandignoresevidencethat’shardtofind.InKahneman’sterms,“whatyouseeisallthereis.”Oneoftheironiesofourbrainwiringisthattheneedtomaketheworldfeelsafeandsensiblecanleadtopoordecision-making.The fast brain is the home of impressions, affect, intuitions, impulse, and

feelings.Itismoresensitivetoincrementalchangethanitistolevels:Standingwayaheadofthepackisn’tnecessarilypleasantifyoudon’tfeelyou’removing

forwardfromwhereyouare.Meanwhile,makingprogress towardagoal,evenwhenjustgettingstarted,isasourceofhappiness.System 1 is highly efficient, needing little energy to operate. But it knows

when it’s outgunned and summons its more powerful partner when needed.Indeed,therelationshipbetweenSystem1andSystem2ishighlycomplicated,but we should not think of them in conflict with each other. They arecomplementaryprocesses.27In ourmental cockpit, the shift from System 1 to System 2 thinkingmeans

turningoffautopilotandmoving tomanualcontrol. Ithappensquicklyandanincalculablenumberoftimesduringourwakinghours.IfIaskedyouiftheroomyou’reinrightnowiscomfortable,System1wouldalreadyhaveananswer.IfIaskedyouhowmanywordsareonthispage,yourslowbrainwouldpowerup.Thetaskisn’tdifficult,butit’snotwhatthefastbraindoes.System2specializesineffortfulmentalactivities.Kahnemannicelydescribes

the effort as literally “paying” attention because operating the slow brainrequiressignificantlymorementalenergy—asmeasuredintermsofglucoseandotherchemicalsinoursystems.Being“mentallyexhausted”isnotametaphor.28Prominent behavioral expert Dan Ariely explains, “Thinking is difficult andsometimesunpleasant.”29The slow brain is engaged when we are deliberately thinking and making

choices.It’showwefollowcomplexrules,remembermorethanonethingatatime, observe a data series and transform it into a causal argument. As atechnicalmatter,“walkingandchewinggum”canbothbehandledbySystem1.Add the task of counting your steps along the way and System 2 will getinvolved.Executivefunctioning,orthewherewithaltoorganizeandplan(whicheveryparentofateenagermustdealwith)—isalsoSystem2territory.The slow brain will transform impulses into agency and impressions into

belief.AsKahnemannotes, the slowbrain is “lazy” and rarely disagreeswithfastbrainintuitions.However,System2ismobilized“whenaquestionarisesforwhichSystem1doesnotofferananswer.”System1tellsyoutheworldisflat.System2allowsyoutoknowbetter.30Whybotherdelvingintoournogginlikeso?Becauselackingabasicsenseof

howwe think impairs the effort to shape a life ofmoney andmeaning.Thesesystemsbring togetheraffect, intuition,belief,anddecisions that in turnshapeouridentitiesandabilitytoleadagoodlife.AbasicunderstandingoftherolesandrelationshipbetweenSystem1andSystem2isacriticaltooltounderstandthedecisionswemake(ordon’t)aswellasouremotionalresponsetothem.31

The 40% solution With this context, we are now in abetterpositiontoask:Howmuchagencydowehaveoverour own happiness? The answer is:We have some, butnot complete, control. We now know that System 1automatically drives quick reactions to most stimuli,generating intuitions and affect. For instance, theimmediate“gut”reactions to receivinga raiseorgettingturned down at the dance are predictable.However, themuscular but lazy System 2 will step in at times todeliberately shape comprehension, preference, andidentity.System1’sinvoluntaryandsubstantialinfluencecannotbeneglected,butadaptivesimplicityreliesontherecognition thatSystem2canbeharnessed towriteourownstoriesasweseefit—atleasttosomeextent.SonjaLyubomirsky,aprofessorofpsychologyattheUniversityofCalifornia,

argues that there are three factorswhichdetermine human fulfillment.32Theseare:

Disposition:Whoyouare.Circumstance:Whatyouface.Intention:Whatyoudo.

Moresurprisingthanthefactorsthemselvesistheirrelativeimportance.Asthepie chart illustrates, our built-in genetic disposition drives about half of thehappiness (and moods generally) we experience. Only a small percentage isdrivenbycircumstance,rangingfromourageorgendertotheweatheroutside.The balance is subject to our own control. Let’s discuss each, because theconsequencesofthisdivisioncoursethroughoutthenarrative.

DispositionOurdispositionisthefeaturesandattitudeswe’rebornwith;insomesense,whowewereborntobe.Inthetug-and-pullbetweennatureandnurture,thisispurenature or genetic disposition. Some are born skinnywhile others husky, sometall andotherspetite.Wecanalso thinkof smartversus slow, sarcasticversusearnest,cockyversushumble,cheerfulversusgrumpy.With happiness everyone has a “set point.”33 Even after disappointment or

exuberance, you return to that level relatively quickly. Research suggests thatabout half of our aptitude for achieving the good life is received, not gotten:“Likegenesforintelligenceorcholesterol,themagnitudeofourinnatesetpoints… governs to a large extent how happy we will be over the course of ourlives.”34Thestudyoftwinsprovidesthemostpowerfulevidenceforthisproposition.35

Even among twins who were separated at birth, and thus grew up apart indifferentcircumstances, researchersnote that the twinssharedverysimilar lifeoutlooksandattitudes.The importanceofsetpoints iscorroboratedelsewhere.One fascinating set of studiesbyUniversity ofVirginia psychologist JonathanHaidt examined how people develop their sense of morality and politics,concluding that it is largely received genetically. A good portion of what we

believeaboutourselvesand theworld ishardwiredatbirth.36Telling someonewho is blue to “be happy,” or trying to convince a liberal to embraceconservativebeliefs,willlikelyfallondeafears.

CircumstanceDespite the power of genetics, much of our self-definition stems from life’sexternal circumstances, such as gender, age, ethnicity, attractiveness,healthiness,maritalstatus,educationallevel,careersuccess,orriches.Therearefew more widely accepted beliefs about a life well lived than that theseconditionsweighheavilyonlife’soutcomes.Itendsupit’snottrue.Onlyasmallportionofourcontentmentinlife—about10%—isdeterminedby

life’s circumstances. Ponder the gravity of that insight for a moment. Theattributesmanyofusoftenusetodefineourselvesareonlyincidentaltolivingwell.Whetheryouliveonacountryestateorinaone-bedroomflat;whetheryouhaveperfectfeaturesorareastrongcandidateforplasticsurgery;whetheryouenjoyfamilyblissorendurednastydivorce;whetheryouareatthetopofyourclass or are an unrepentant slacker. These and countless other examples haveonlyaslightimpactonourlifelonghappiness.Somuch ofwhatwe think defines us isn’t actually all that important. How

couldthisbe?Theansweristhatwegrowaccustomedtojustabouteverything,both good and bad. The brain is wired with an ability to adapt to whateversituation we find ourselves in, and it does so much more quickly than weanticipate. It’s a remarkable defensemechanism, for it allows us to transcendmost setbacks in life.Misfortune or sorrow rarely hold us back frommovingforward. The flip-side, however, is that the psychological impact of greatoutcomesorgood fortuneevaporatesquicklyaswell.Theevidence forwhat’ssometimesreferredtoas“hedonicadaptation”isvast.37Even so, we don’t conduct ourselves as if demographic and environmental

factors are largely irrelevant for lasting contentment.We covet beauty, fame,riches, success, standing, and so forth. We tilt toward the windmills in ourminds,fightingbattlesofephemeralimport.AccordingtoLyubomirsky,“Nearlyall of us buy into ‘the myths of happiness’ – beliefs that certain adultachievements(marriage,kids,jobs,wealth)willmakeusforeverhappyandthatcertain adult failuresor adversities (healthproblems,nothaving a lifepartner,having little money) will make us forever unhappy.”38 The evidence suggestsotherwise.

IntentionAftertakingintoaccountgeneticsandenvironment,wehavesomecontroloverour own destiny—about 40% according to the research.39 Conscious decision-makinganddeliberateactionhavematerialconsequencesforthequalityofone’slifeexperience.Yourchoicesofthoughtandactionmakeabigdifference.Ifindthe40%estimateempowering,fortworeasons.First,it’sabig-enough

number.Yes,eachofusisbornwithstrongdispositionstobeonetypeofpersonoranother.Butalmostthesamelevelofimpactcomesfromplanning.Youcancertainly leanongeneticsand thewhimsof fateasanexcuse for the situationyou find yourself in.But that is a choice in itself, and hardly an inspired oneknowingthatweareeachbornwithaheartyself-improvementtoolkit.Second, the proportional impact of intention sets reasonable expectations for

whatwecanandcannotdo,forwhat’spossibleornot.AsKarlMarxfamouslywrote,“Menmaketheirownhistory,buttheydonotmakeitastheyplease.”40There’snogettingaroundlife’sgreatlottery,thatpowerfulsetpointwereceivefromour biological parents. Its importance can’t be overlookedorminimized.Norarecircumstancesentirelyirrelevant,either.Knowing that there’s always a balance between what’s in our control and

what’s not alleviates some of the pressure of believing that through rawwillpower,wecanbecomesomeonewe’renot.Itjustdoesn’tworkthatway,sothere’s no need to abide by unachievable standards.While I love theThoreauquotethatopensthischapter,weshouldn’tneglectthatAmerica’spatronsaintofcontemplativeindependencehadhismotherdohislaundry.41QuietwalksaroundWaldenPondwereone thing,butdirtydrawerswereanother.Weallhaveourlimits.Wedowhatwecan.

PrincipledplanningTakingcontrolofyourowndestinyisgratifying, even when accepting that control isincomplete. The potency of neurons, genes, andcircumstances in partially determining life outcomesdoesn’tdiminishtheimportanceofagency.Buildingandexecutingonaplan is, in itself, a sourceofhappiness.42We should strive to establish what the French chemistLouis Pasteur called a “prepared mind,” a concept of

empowerment that has been adopted by modern socialpsychologists.43

AccordingtoTimothyWilsoninRedirect, thosewhofarebetterinlife“havebettercopingstrategies in thefaceofadversity—theyconfrontproblemsratherthanavoidthem,planbetterfor thefuture,focusonwhat theycancontrolandchange,andpersistwhentheyencounterobstaclesinsteadofgivingup.”44Thosewhotakethepreparedmindseriouslywillhavebetterlifeoutcomes.In life,webegin justonce,butwebeginagaincountless times.Resilience is

wheremanygreatthingsareborn.Adaptationrecognizestheneedtorespondtolife’s events, including those which are unforeseen and unwanted. To useWilson’sfelicitousphrase,itis“changingthestoriesweliveby.”45Astheguidingprincipletokeepourmoneylivesinorder,adaptivesimplicity

findsempowermentinchangeandinspirationinclarity.Mentalenergyisnotaeuphemism.Itisliterallyalimitedphysicalresource,sowewanttoengageoureffortfulbraininthemostefficientwaypossible.Amidtheoverwhelmingcomplexityofmodernlife,weseektofindsimplicity,

a break from the noise. Perversely,we are naturally attracted to the complex,especially in technically challenging domains like money. We sometimesassumethatwhatappeartobethornyproblemsarebestaddressedbyelaboratesolutions.Insodoing,weengagewithmoreandmoreinformation,butresearchsuggests

thatthemoreinformationwegather,theworsechoiceswemake.46Further,themoreinformationwegather,themorecompelledwefeeltomakedecisions.Wedon’t like toharvest new informationbut thendonothingwith it. It feels likewasted effort. Finally, toomuch deliberation hinders satisfaction.At a certainpoint, putting too much thought into something undermines the value ofwhateveritiswe’reseekingtofigureout.47Towit,oneofthedeepestsourcesofsadnessfor theconsumeriscomparisonshopping:Weighingtheprosandconsofmultiple attributes acrossmultiple product lines ismentally exhausting andsometimesdepressing.48Inthecontextofourmoneylives,simplicitymeanshavingalimitednumberof

clearly articulated concepts that both make sense of a noisy world and drivesharp, reasonabledecisions; and an awareness that these concepts canweathertheinevitableforcesofchangethatdisrupteventhebestmadeplans.

The shape of things to come The shapes delineate the

path.Adaptivesimplicityistheengine.Itdrivesthrougheach stage of the journey.49 In the first step, we definepurposeormission.Thatdoesn’thappenjustonceinlife.It happens every now and then, involving course-correctionsaswegetknockedaroundfromtimetotime.We adapt. Next, we underwrite a meaningful life byrelyingonaclear,well-articulatedstrategy.The“todo”listinourmoneylivescanfeelendless,sothekeyhereisprioritization.Finally,wehavemanydecisions tomake,sosimplificationisessential.

Wecannowintentionallyshapealifeofmoneyandmeaning.

24. Timothy Wilson, Strangers to Ourselves: Discovering the AdaptiveUnconscious(BelknapPress,2004).25. Daniel Kahneman, Thinking, Fast and Slow (Farrar, Straus and Giroux,2011).26.Kahneman,Thinking,FastandSlow,p.106.

27.ForadeepdiveontheSystem1vs.System2dichotomy,seeLisaFeldmanBarrett, How Emotions Are Made: The Secret Life of the Brain (HoughtonMifflinHarcourt,2017).28.RoyF.BaumeisterandJohnTierney,Willpower:RediscoveringtheGreatestHumanStrength(Penguin,2011).29. Dan Ariely, Predictably Irrational: The Hidden Forces That Shape OurDecisions(HarperCollins,2009).30.Kahneman,Thinking,Fast and Slow, p. 25.The divide betweenSystem1and System 2 is where temporal discounting finds its launching pad. Almosteverythingourbrainengagesinisinthehereandnow.Thefurtheroutintimesomethingis,theharderitistoconsider—exponentiallyso.31.AnnieDukesharplyarticulatesthedistinctionbetweendecisionandoutcomeinThinking InBets:MakingSmarterDecisionsWhenYouDon’tHaveAll theFacts(Portfolio,2018).32. Sonja Lyobomirsky, K.M. Sheldon, K.M., and D. Schkade, “PursuingHappiness: The Architecture of Sustainable Change,” Review of GeneralPsychology 9, 2005, pp. 111-131; and K. Sheldon and Sonja Lyubomirsky,“ChangeYourActions,NotYourCircumstance:AnExperimental Test of theSustainableHappinessModel,”inA.K.DuttandB.Radcliff(eds.),Happiness,Economics,andPolitics:TowardaMulti-DisciplinaryApproach(EdwardElgar,2009),pp.324–42.TheworkofLyubomirskyhasbeenveryinfluentialforthisproject.SeeTheHowofHappiness:AScientificApproach toGetting theLifeYouWant (Penguin, 2008); andTheMyths of Happiness:What ShouldMakeYouHappybutDoesn’t,WhatShouldn’tMakeYouHappybutDoes (Penguin,2013).Thethreefactorsshesuggestsarediscussedthroughoutthefieldofsocialpsychology. See, for example, Jonathan Haidt, The Happiness Hypothesis:Finding Modern Truth in Ancient Wisdom (Basic, 2006), in particular the“happinessformula”onp.90.33.Lyubomirsky,How.34.Lyubomirsky,How.Cf.DavidEpstein,TheSportsGene:InsidetheScienceofExtraordinaryAthleticPerformance(Penguin,2013).35.Lyubomirsky,How,p.55.36. Jonathan Haidt, The Righteous Mind: Why Good People Are Divided byPoliticsandReligion(Vintage,2012).37. Sonja Lyubomirsky, “Hedonic Adaptation to Positive and NegativeExperiences,”inSusanFolkman(ed.),TheOxfordHandbookofStress,Health,

andCoping (OxfordUniversityPress,2011),pp.200-224;TimothyD.WilsonandDaniel T. Gilbert, “Explaining Away: AModel of Affective Adaptation”(2008),PerspectivesonPsychologicalScience3:370–86;JaneEbert,DanielT.Gilbert, andTimothyD.Wilson, “Forecasting andBackcasting:Predicting theImpactofEventsontheFuture”(2009),JournalofConsumerResearch36;SaritA. Golub, Daniel T. Gilbert, and Timothy D. Wilson, “Anticipating One’sTroubles: The Costs and Benefits of Negative Expectations” (2009),Emotion9(2):277–81;Lyubomirsky,How,p.41ff.38.Lyubomirsky,How.39.EdwardDeciandRichard,“Self-Determination,”InternationalEncyclopediaof theSocial&BehavioralSciences 2015 (21),2ndedition,pp.486–91.Theyargue that humans have an “innate developmental tendency,” meaning aconsciousanddeliberateurgetogrow(p.486).40. Karl Marx and Daniel De Leon, The Eighteenth Brumaire of LouisBonaparte(InternationalPub.Co.,1898).41.KathrynSchultz,“PondScum,”TheNewYorker,19October2015.42.Lyubomirsky,How,p.67.43. Lyubomirsky,How; and Lyubomirsky,Myths. See also Rosamund StoneZander,PathwaystoPossibility:TransformingOurRelationshipwithOurselves,Each Other, and the World (Penguin, 2016); Brene Brown, Braving theWilderness: The Quest for True Belonging and the Courage to Stand Alone(RandomHouse,2017);andEdDienerandRobertBiswas-Diener,Happiness:UnlockingtheMysteriesofPsychologicalWealth(Blackwell,2008).44.TimothyWilson,Redirect:ChangingtheStoriesWeLiveBy(Little,BrownandCompany,2011),p.66.45.Wilson,Redirect.46.AnthonyBastardiandEldarShafir,“OnthePursuitandMisuseofUselessInformation,”JournalofPersonalityandSocialPsychology1998,75(1):19-32;GerdGigerenzer,GutFeelings:The Intelligenceof theUnconscious (Penguin,2007);RonFriedman,“WhyTooMuchDataDisablesYourDecisionMaking,”PsychologyToday, 4December2012;BobNease, “HowTooMuchDataCanHurtOurProductivityandDecision-Making,”FastCompany,16June2016.47. Loran Nordgren and Ap Dijksterhuis, “The Devil Is in the Deliberation:Thinking Too Much Reduces Preference Consistency,” Journal of ConsumerResearch,Vol.36,No.1(June2009),pp.39–46.

48. Sonja Lyubomirsky and LeeRoss, “Changes inAttractiveness of Elected,Rejected, and Precluded Alternatives: A Comparison of Happy and UnhappyIndividuals,” Journal of Personality and Social Psychology 1999, 76(6), 988–1007; and Elizabeth Dunn, Daniel Gilbert, and Timothy Wilson, “If MoneyDoesn’t Make You Happy, Then You Probably Aren’t Spending It Right”(2011),JournalofConsumerPsychology21:115–25.49.Lyubomirskyetal.,“PursuingHappiness”.

PURPOSE

Thepartwhereweintersecthappinessandmoney

T

3.ThePlacesYouMightGo

“It is not the strongest of the species that survives, nor the mostintelligent,buttheonemostresponsivetochange.”

–CharlesDarwin

“Fallseventimes,standupeight.”–Japaneseproverb(“Nanakorobiyaoki”)

Not-so-goodstreetsHE FINAL BOOK Dr. Seuss published in his lifetime was Oh, The PlacesYou’llGo!Released in 1990, itwas an instant classic, achieving the top

rankingintheNewYorkTimesBestSellerlistforfiction,yetanotheraccoladeinTheodorSeussGeisel’s50-yearhistoryofdazzlingreaderswithhisoff-beatbutprofoundtales.Sincethen,Placeshassoldmillionsofcopies—thoughnotevenlythroughout

eachcalendaryear.Thebookseesaspikeinsaleseachspring,rightaroundthetimeofhighschoolandcollegegraduations.50That’snotsurprising,asitisoftenconsideredthe“grownup”Dr.Seussbook,tellingthetaleofacharacter—you,basically—whoisembarkingonanepicjourney,atripto“GreatPlaces.”Alongtheway, inSeuss’ unmistakable rat-a-tat rhymes andpolychromatic drawings,theprotagonist—again,you—encounterssuccessandchallenge,timeandagain:“Whereveryoufly,you’llbebestofthebest.Whereveryougo,youwilltopalltherest.Exceptwhenyoudon’t.Because,sometimes,youwon’t.You’llget mixed up, of course, as you already know. You’ll get mixed up withmanystrangebirdsasyougo.Sobesurewhenyoustep.StepwithcareandgreattactandrememberthatLife’saGreatBalancingAct.Justneverforgettobedexterousanddeft.Andnevermixupyourrightfootwithyourleft.”Seuss’deceptivelyelementarybooklaysbareinjust340wordslife’sjourney

of ups and downs, decisions good and bad. Many exclamation pointsnotwithstanding,itsaffirmingmessageissober—thingsdon’talwaysworkout,andevenwhentheydo,itoftenrequirestakingsomescrapes,hittingdead-endsdowna“not-so-goodstreet.”Life’s journey,Dr.Seussteachesus,goesaround

andround,forbetterorworse.Wedon’tgettothatGreatPlaceinastraightline.Evenaswemoveforward,life’spathisacircle.I suspect that the perennial popularity of Places is due less to its obvious

relevanceforyounggraduatesthanforitsprofoundmeaningtothosewhogiftit.As we grow older, we encounter more and more “not-so-good streets” and“strange birds.”We appreciate that as many times as we get knocked down,life’ssuccessisfoundingettingbackup.Grown-upswalkawayfromPlacesmindfulofthe“big”questions.Whatismy

life’s journey?Where am I going?What path do Iwant to take to get there?WhathappensifIdon’tmakeit?WhathappensifIdo?Answering these questions is the deep undercurrent of our lives. They’re

unlikely to be daily obsessions, but we certainly stop from time to time andwonder.Thethingis,mostofusdon’tknowtheanswers,especiallyatthestart;manyofusmayneverfigureitoutentirely.Evenwhenwethinkwe’vegotafixonit,somethingupsetsthecartandresilienceisamust.Fallseventimes,standup eight. It’s the grit to push forward, the wherewithal to adapt, that mattersmost.In the realworld,moneyeventuallycreeps into the tale.HowdoIpay for it

all? Isaparticular journeyworth it?CanIaffordameaningful life?Throwingmoney into the mix is a bummer. Yet that discomfort is precisely why ourmoney lives are so fraught. As we engage in earning, spending, saving, andinvesting,we’re ultimately attempting to underwritewhatever it iswe end upchoosingtovalueandstrivefor.ThefirststepinTheGeometryofWealthisfiguringoutwhereyouwanttogo.

Moneyservestopushusinthatdirection.It’satoughlovemoment:It’suptoyouandnooneelsetofigurethispartout.

NeitherInoranyoneelsecangetyouthere.Onlyyoucandecidewhatmountaintoclimb.Infact,mostofuswouldresentbeingtoldwheretoventure.Butthat’snottosaythatwe’renotappreciativeofreceivingsomehelpalongtheway.Twokindsofhelparepossible:Perspectiveonthecontentofameaningfullife

andtheprocessofmanagingtherideandstayingontrack.Thecirclesymbolizesthatwe’reneverdone figuring itout.Adapting to theunpredictabilityof life’srichpageant isconstitutiveof thequest,andinmyhumbleopinion,oneof thejoysoftheride.

Averybriefhistoryofhappiness

Thousandsofyearsofcivilizationhavegivenus tensof thousandsofvolumeswhich plumb the depths of what counts as a life worth living. Countlessphilosophers,priests,andpunditshavespokentowhatitmeanstoflourishandtheconditionsfordoingso.In thechecklist-drivenworldof financialplanning, this iswhenwe typically

talk about “goals.” After basic sustenance is certain, the script is somewhatpredictable:Anicehomeinanicecommunity.Supportyourchildrenwell,setthem off in the right direction, pay for their college if possible. Retirecomfortablyandwithdignity.Thesearethethingsthatmoneybuys.Genericbuthardlytrivial,thesegoalsareimportant.Theyaremarkersofamodernlifewelllived.Markers,yes,butnotthecore.Instead,thecorecouldbesaidtobethepursuit

andattainmentofhappiness.Aristotlefamouslyproclaimedthathappinessis“themeaningandthepurpose

of life, thewhole aim and end of human existence.” It is the ultimate humanendeavor, one that has long occupied mankind’s imagination. Indeed, fastforwardmore than a couplemillennia, there is nowamassive fieldof inquiryknownas“positivepsychology,”orthescienceofhappiness.What’sremarkableis that theancientformulationofhumanhappinesssquares justaboutperfectlywithwhatisprofferedbymodernpsychologyandneuroscience.About2,339yearsseparatethepublicationofAristotle’sNicomacheanEthics

andalandmark1998addressbyMartySeligman,thethenincomingpresidentofthe American Psychological Association and widely considered the father ofpositivepsychology.Histalkwasaclarioncalltohisprofessionto,onceandforall, understand happinesswith scientific rigor, jumping off fromhis view that“Wehavescantknowledgeofwhatmakes lifeworth living.” It’saboldclaimgiven the vast insights on the topic from philosophy, literature, psychology,religion,andotherdisciplines.What,then,wasthedisconnect?Let’sgobackinhistoryinordertounderstandthearcofthisfundamentalexistentialinquiry.

StraighttalkFirst off, there’s no getting past the semantics of “happiness.” Joy, pleasure,ecstasy, fulfillment, contentment, satisfaction, cheerfulness, merriment, gaiety,delight,wellbeing,glee, exuberance, exhilaration.The thesaurusearns itskeepon this topic.TheWikipageon“Happiness”hashad3,000authorsand6,000edits.Without a single exception, everyphilosopher and scientist I’ve readontheissuegrappleswithdefinitions.

Attempting topreciselydefineanddistinguishall these terms isanepistemicand emotional cul-de-sac. Aristotle and his contemporaries grappled with themeaning of eudaimonia. Technically, it translates to merely happiness orwellbeing,but itsmore robust interpretation is that of “human flourishing,”oftherealizationofthebestversionofone’sself.Inthe4thcenturyBCE,AristotletookissuewiththehedonismofEpicurusand

others, who defined happiness in terms of the attainment of pleasure and theavoidanceofpain.51Hearguedthatamorevaluablerealizationofhappinesswastiedtoleadingavirtuouslife,writing“Thefunctionofmanis to liveacertainkindoflife…andifanyactioniswellperformeditisperformedinaccordwiththeappropriateexcellence:Ifthisisthecase,thenhappinessturnsouttobeanactivityofthesoulinaccordancewithvirtue.”52ToAristotle, thepursuitofhappiness isanexercise invirtuous living. Itwas

theclimacticexperienceofpursuinggoodthings:Justice,courage,temperance,honor, benevolence, and prudence among them. From this perspective,happinessisactionmorethanfeeling.Inasense,happinessisaskill.Those who elevated eudaimonia rejected hedonism’s focus on moments of

pleasure and/or minimized pain. They regarded happiness as somethingweightier, encompassing reflection over whether one has lived up to theirpotential over the course of their lives. The “good life” is not the tweak ofephemeral pleasure, but engagement withmoremeaningful, virtuous pursuits.Momentary pleasures are distinct from the enduring gravity of meaningfulexperience.Thisspectrumcapturestherangeofcharacteristicsandemotionsweassociate

withhappiness:

Atoneendisexperiencedhappiness.Thisisthehedonistictake.It’smoodoraffect:Areyoucheerfulorareyoublue?Youjustateanicecreamconeonahotdayorsatrivetedtothatblockbustermovie.YoucheckedyourbucketlistwithaziplinerideinCostaRicaorahikethroughYellowstone.Youjusthadafightwithyourspouseorlostthepick-upbasketballgame.Theseeitherdelightfulorsad moments stem primarily from our System 1 “fast” brains. Experiencedhappinessorsadnessiseffortless.Attheotherpoleisreflectivehappiness,Aristotle’seudaimonia.It’sadeeper

senseof fulfillment.AsIwilldetail in thenextchapter, thiscouldbebuildingdeeprelationshipswithothers,honingexcellenceinafavoritecraft,demandinglibertytomakeone’sownchoices,orfindingpurposeinagreatergood.Gettingat the contentment these experiences can generate requires System 2 thinkinginsofarastheyinvolvedeliberateintrospection.Reflectivehappinesssoundsweightierthanexperiencedhappiness.Frankly,it

sounds more important. However, the pursuit of experienced happinessconsumesusmostofthetime.PerneuroscientistTaliSharot:“Ourhappinessisnot affected to a large extent by reflecting on our lives, but by the flood offeelingsthatareconstantlygeneratedwithinus.”53Distinguishing the poles of pleasure and contentment has a temporal

dimension. Experienced happiness occurs in the here-and-now. Its impact isshorterindurationandthesubjectmatterathand(theicecreamconeorzipline)is usually narrow in scope. Feelings of deeper contentment can have a longerdurationastheytendtobegroundedinbroaderengagements.The early debates among the Greeks took place in an era when modern

conceptions of individual freedom, technology, and industry were literallyunheard of. Even so, the legacy is strong. The modern science of happinesstangleswithhedonismversuseudaimonism,investigatinghoweachoperatesinthebrain, including the relationshipbetween the two.Ofcourse, thescience ismorecomplicated thana simple fork in theneural road,but aswe’ll see frommuchofthecurrentscholarshipinpositivepsychology,thatdistinctiongetsusalotofthewayhome.

ModerntimesBetweenthenandnow,notmuchhappenedforaverylongtime.Theso-calledDark Ages that ensued after the decline of Greco-Roman civilization broughtthesedebatestoastandstillforaround1,000yearsorso(inWesterncivilization,at least). And then a lot happened: The Reformation, Renaissance, andEnlightenment did not just resume the conversation, but accelerated andbroadenedit.Themoderncontemplationofhappinesscouldn’tstartinearnestuntiltherise

ofthemodernindividual.Startingslowlyinthe16thcentury,andacceleratinginthe18th,aradicalreorderingofsocietiestookplaceinwhichtheindividualwas—atleastinprinciple—incrementallyempoweredwithavoicetoconfrontbothStateandGodinlegacysocialorders.ItwasonlyintheAgeof theIndividualthatthequestforhappinesstookonitsmodernguise.Theforcesthatusheredina different playbook for what counted as legitimate individual happinessincludedthereformofCatholicChurchorthodoxy,theearlyshootsofcapitalismandmodernscience,andthecreepingenfranchisementoftheformerlyignoble.Critically, large-scale revolution in the late 18th century galvanized the

politicalpursuitofindividuallibertywhich,untilthen,hadonlybeenarticulatedintheory.Forexample,theutilitarianismofJeremyBenthamadvocatedforthegreaterhappinessprinciple, the idea that actionsaremoralwhen theypromotehappiness (“utility”)andsocietiesare improvedwhenmorepeopleenjoymorehappiness.Atthetime,thiswastrulyradicalthinking.Theglobaldiscourseon“freedom,”andthencenturieslater“humanrights,”emergedfromthisera.No countrywasmore central to the expressionofEnlightenment ideals than

theUnitedStates.Attheriskofhyperbole,itallstartedwithonesentence:“Weholdthesetruthstobeself-evident,thatallmenarecreatedequal,thatthey are endowed by their Creator with certain unalienable Rights, thatamongtheseareLife,Liberty,andthepursuitofHappiness.”The second sentence of The Declaration of Independence was a watershed

momentinhumanhistory.PerhapsitissoingrainedinAmericanculturethatit’sdifficulttofullyappreciateitsstatusasoneofthemostrevolutionarysentenceseverwritten. In liltingprose, it droveadagger into theheartof the traditionalpolitical and social order. Its radicalism is cast in a proclamation that theindividual (yes, it says “man” and yes, the fact that it was written byslaveholdersremainscontroversial)hasanaturalrighttosethisowndestinyandpursueeudaimonia.

In both political discourse and social structures, the sentiment raisedexpectations for all generations to come. The sunset of slavery, the rise ofindividual liberties and self-determination, the advent of human rights—theseareallchildrenoftheEnlightenmentproject,oftheAgeoftheIndividual.Therehave been exceptions and backpedaling, but the grand arc of history over thepast 250 years has edged toward a social context in which individualcontentmentisbothlegitimateanddesirable,notonlyasaprivateaffairbutasamatterofpublicpolicy.The United States as a global cultural force in the 20th century was an

importantpartofthatarc.AmericandominanceafterWorldWarIIwasnotonlyeconomic and martial, but cultural. Materialist values and the creation of themodernconsumerwerekeypillarsofitsculture.Considerthissomewhatoddlistof American inventions from the last century: The song Happy Birthday, theHappyMeal, theHappiestPlaceonEarth,ThePowerofPositiveThinking, the“self-help” industry,andthemodernadvertising industry(includingtheyellowsmiley face, invented in 1963 by ad man Harvey Ball). These, among otherfactors, popularized a particular form of happiness, one with human-as-consumeratitscenter.Indeed, a prominent research study from 1967 defined a happy person as:

“Young, healthy, well-educated, well-paid, extroverted, optimistic, worry-free,religious,marriedpersonwithhighself-esteem,jobmorale,modestaspirations,ofeithersexandofawiderangeofintelligence.”54Inotherwords,youwereinpretty good shape if you had a starring role onThe Dick Van Dyke Show orBewitched.Fast forward to the end of the last century, this saccharine view sat in the

crosshairsofMartySeligman’snewscienceofhappiness.Alongwithacohortof other researchers and practitioners, he aimed to pivot psychology fromreactive to proactive, to “show the world what actions lead to wellbeing, topositiveindividuals,toflourishingcommunities,andtoajustsociety.”In his 1998 address, Seligman recognized that trend, raising two thorny

problems in trying to identify what goes into living well. The first was thebackdrop ofwidespread depression in an era of unprecedented prosperity. Hecalled this “themajor paradox of the late 20th century,” especially as chronicsadness impacted somanyyoungAmericans.HappyMeals andDisneyWorldweren’tthesolutions.Second, Seligman remarked that modern psychology had been primarily

shapedby theaftermathofWorldWar II,whenmanyendeavored toput their

livesbacktogether.Psychopathologyfocusedonhowpeopleendureandrecoverfromtragedy,not“hownormalpeopleflourishundermorebenignconditions.”TheAgeoftheIndividualisabout500yearsold,butthescienceofindividual

fulfillment is young. It has already generated a massive and fascinatingliterature.55 The fruits of that coordinated and well-resourced research—theanswerstothequestionofwhatreallymattersforalifewelllived—arerevealedinthenextchapter.

50.Notedinusat.ly/2sQdAOl.51. Richard M. Ryan and Edward L. Deci, “On Happiness and HumanPotentials: A Review of Research on Hedonic and Eudaimonic WellBeing”(2001),AnnualReviewofPsychology,52:141-66;LukeWayneHendersonandTess Knight, “Integrating the hedonic and eudaimonic perspectives to morecomprehensively understand wellbeing and pathways to wellbeing” (2012),InternationalJournalofWellbeing2(3),196-221.52.Aristotle,TheNicomacheanEthics,1098a13.53.Tali Sharot,TheOptimismBias:ATour of the IrrationallyPositiveBrain(Pantheon:2011),p.76.54. Cited in Ed Diener et al., “Subjective WellBeing: Three Decades ofProgress,”PsychologicalBulletin1999,125(2):276-302.55. In addition to the books on happiness already cited, see: Tal Ben-Shahar,Choose theLifeYouWant:101Ways toCreateYourOwnRoad toHappiness(Experiment, 2012);TalBen-Shahar,Happier:Learn the Secrets toDaily Joyand Lasting Fulfillment (McGraw-Hill, 2007); Robert A. Emmons, Thanks!:HowtheNewScienceofGratitudeCanMakeYouHappier(HoughtonMifflin,2007);DanielT.Gilbert,StumblingonHappiness(Knopf,2006),RickHanson,Hardwiring Happiness: The New Brain Science of Contentment, Calm, andConfidence(Harmony,2013);StefanKlein,TheScienceofHappiness:HowOurBrains Make Us Happy—and What We Can Do to Get Happier (Marlowe,2006);RichardLayard,Happiness (Penguin,2005);RajRahunathan, IfYou’reSo Smart, Why Aren’t You Happy (Portfolio, 2016); Martin E.P. Seligman,Flourish: A Visionary New Understanding of Happiness andWellbeing (FreePress,2011);EmmaSeppala,TheHappinessTrack:HowtoApplytheScienceofHappinesstoAccelerateYourSuccess(HarperCollins,2016).

4.WhatMatters“Themysteryofhumanexistenceliesnotinjuststayingalive,butin

findingsomethingtolivefor.”–FyodorDostoyevskyTheFourC’sIn2015,twooftheworld’sspiritual

leadersmetinDharamshala,Indiatositdown,talk,andcelebratetheirbirthdaystogether.Overthecourseofafewdays,theDalaiLamaand

ArchbishopDesmondTutu,alreadydearfriends,engagedinawonderfulconversationaboutlife—aboutsplendorandsuffering.

AsdescribedinTheBookofJoy,thetwomencoveredthewaterfront,fromthemeaningof itall towhether thesoupwashotenough.(TheseguysarefunnierthanIwouldhaveexpected.)Onseriousmatters,thedistinctionbetweenjoyandhappinessanchoredtheconversation.LikeImentionedearlier,noengagementinthistopic,evenbyitshighpriests,canavoidsemantics.According to the Archbishop, “Joy is much bigger than happiness. While

happiness is often seen as being dependent on external circumstances, joy isnot.”TheDalaiLamaagreed:“Joyissomethingdifferentfromhappiness.WhenIusethewordhappiness,inasenseImeansatisfaction.”Channeling Aristotle’s original distinction, they introduced another critical

dynamic.Whilehappiness(whatIrefertoasexperiencedhappiness)comesandgoes with daily pleasures, the achievement of joy (reflective happiness) takeswork.56 From their respectiveCatholic andBuddhist traditions, both expressedthatthereisnojoywithoutstruggle,perhapswithoutsuffering.Joy,itseems,hasapriceofadmission.So what does the modern science of happiness tell us about what’s worth

paying for? Ifwealth isdefinedas fundedcontentment, thenweneed toknowwhatwe’resupposedtobefunding.Wrappingmybrainaroundwhatgoesintothegoodlifeisn’tanexercisethat

started only with the writing of this book. Like everyone else, “What does itmeantobehappy?”and“Whatisalifeworthliving?”arequestionsI’vethoughtaboutmanytimes,andindifferentways,startingwhenIwasakid.I’mbettingthe same applies to you. For the purposes here, I’ve also put in hundreds of

hoursreadingacrossthemanydisciplinesthatspeaktothisbigtopic.Basedonthat,I’vecometobelievethattherearefourenduringsourcesofajoyfullife.IcalltheseConnection,Control,Competence,andContext.

Connectionistheneedtobelong.Controlistheneedtodirectone’sowndestiny.Competenceistheneedtobegoodatsomethingworthwhile.Contextistheneedforapurposeoutsideofone’sself.

At the nexus of money and meaning the “Four C’s” are what is beingunderwritten.Theysitattheheartoffundedcontentment.Let’slookateachoftheseinturn.

Connection

Every now and then I have the pleasure of walkingmy kids to school. Overthose five blocks, I find joy in holding my daughter’s hand, listening to herstories,andfieldingmyson’sendlessquestionsabouteverything,usuallysports.MaybesomedayI’ll tireofthechatter,butIdoubtit.Ialsofeelhappy,thoughlessintensely,whenwecomearoundthecorneroftheschoolandenterthesea

ofkids,parents, and teachersconveningon theplayground,allwaiting for theopeningbelltoring.As Iwade into thecrowdofhundreds, I enjoyseeingneighborsand friends,

knowing that these are nice people with whom I share many values andaspirations.OurleafynorthsideChicagoneighborhoodisaspecialplacetomyfamily andme.Mywife and I are active in this community, giving time andraisingmoney for the school and other socialmissionswith a local impact. Iguesswhat I feelwhen I turn that corner, and seemykids sprint toward theirfriends,andstandthereinthecontrolledchaosofagradeschoolplayground,isthatIbelong.Iamhome.Humans are social animals andweharbor anunwaveringneed tobelong. In

order to feel alive—and going back millennia, in order to remain alive—wemustbelongtoacommunity.Communityprovidessafety,identity,andmeaning.Tribalismisanessentialfactofhumanlife.57Ittranscendstimeandculture.In Social: Why Our Brains Are Wired to Connect, neuroscientist Matthew

Liebermanwritesthatourbrainshaveevolvednotjusttothink,notjusttosolveproblems, but to connect with others: “We are wired to be social.” It’s acaptivating thesis asmodern science now allows us to literally see via digitalimaging technologies the power of connection. According to Lieberman, theneed to connect is as fundamental as our need for food and shelter: “Oursociality iswoven intoa seriesofbets that evolutionhas laiddownagainandagain throughout mammalian history. These bets come in the form ofadaptations that are selected because they promote survival and reproduction.Theseadaptationsintensifythebondswefeelwiththosearoundusandincreaseourcapacity topredictwhat isgoingon in themindsofothers so thatwecanbettercoordinateandcooperatewiththem.…Thisiswhatourbrainswerewiredfor:reachingouttoandinteractingwithothers.”58Thisisbignews:Whoweareashumanbeingsisnotwhatmostofussuspect

it to be. It does not begin, as is conventionally thought,with the fully-formedindividualwho then finds his or herway in theworld. Instead, connection toothers creates who we are as individuals—an epic reversal of the receivedwisdom.Eventheabilitytoreasonevolvedtosolvesocialproblems.“Reasonisanadaptationtothehyper-socialnichehumanshaveevolvedforthemselves.”59When we recognize that what appear to be deeply individual functions areactuallydrivenbysocialconnections, itshouldcomeasnosurprisehowmuchtribalismdefineseachofus.

The evidence of the importance of social bonds for a meaningful life isoverwhelming.60NotedpsychologistTimothyWilson suggests that “Happinessresearchwilltellyouthatthenumberonepredictorofhowhappypeopleareisthe quality of their social relationships.”61 Moral philosopher Jonathan Haidtremarks that positive psychology can be summarized in three words: “Otherpeoplematter.”62ProminenthappinessresearcherEdwardDienerhasempiricallyshownthatsocialrelationships—strongandfrequenttiestofriends,family,andcommunity—arehighlycorrelatedwithhappiness.63Researchintotheoppositeofconnection—isolationandloneliness—reinforces

the point. More than a century ago, the writer Emily Dickinson, a legendaryreclusewhodidn’t leaveherhouse (orevenherbedroom) foryears,describedlonelinessas“theHorrornot tobesurveyed.”Despiteheradmonition,modernsciencehasdelveddeeplyintothenatureofchroniclonelinessanddocumentedhow it causes suffering, both emotionally and physically. There is a verifiedneurological linkbetween loneliness anddepression.64Loneliness is associatedwith increasedstressandbloodpressureandadiminished immunesystem.65 Itaccelerates cognitivedecline, especially in theelderly, and stuntsdevelopmentamongadolescents.66Thedeep-seatedneedtobelongingeneraldoesnottellusthespecificscopeor

levelofabstractionatwhichwebuildthesebonds.Wemightenjoykinshipwithourbloodrelationsandclosefriendshipswithaselectfew.Wearepartoflocalcommunities,likemylittleChicagoneighborhood.Geographically,many are strongly affiliatedwith their region and especially

theircountry;faith,patriotism,andnationalismareamongthestrongesthumanidentities. Our interests bring us together as well. Tying yourself to anythingfrom environmental causes to a sports team (I am a proudmember of SteelerNation) to a groupof hobbyists (boating, chess, online gaming, dog lovers) isoneoflife’smostpowerfulmotivators.Numerousandoverlappingmembershipsperhapsgiveusmultiple formsofbelonging, love,safety, identity,orpurpose.(Animportantsociologicaltrendistheweakeningofthesesocialties.)67Itisnotonlyconnectiontootherswhichdrivesus,butalsooppositiontoothers

weperceiveasdifferentorthreatening.Aridiculoussub-plotinoneofthemostridiculouscomediesofalltime,MontyPython’sLifeofBrian,pittedtwogroups—the People’s Front of Judea and the Judean Peoples’ Front—against eachother.Theysharedtheexactsamegoal(liberationofJudeafromtheRomans).Theybasicallyhadthesamename.Theylookedexactlylikeeachother.Buttheywere deadly rivals. The rivalry was absurd, which was to prove a point. The

merefactof“otherness”andliterallynothingelsedrovetheschism.Blessedarethecheesemakers,Isuppose.The fact of in-versus out-group conflict, always more serious than Monty

Python, has been a topic of circumspection through history. Harvardneuroscientist and philosopher Joshua Greene, inMoral Tribes, demonstratesthatoppositional identity isverypowerful.68 Intergroupcompetition isastrongcause of individual identity. According to Yuval Harari in Sapiens, “Homosapiens evolved to think of people as divided into us and them. ‘Us’was thegroup immediately around you, whoever you were, and ‘them’ was everyoneelse.Infact,nosocialanimaliseverguidedbytheinterestsoftheentirespeciestowhichitbelongs.”69For us more advanced animals, the list of us-versus-them is innumerable.

Christians vs. Muslims vs. Jews. Protestants vs. Catholics. Sunni vs. Shiite.Americansvs.Russians. Indiavs.Pakistan.Democrats vs.Republicans.Laborvs. capital. Crips versus Bloods. Real Madrid vs. Barcelona. Steelers vs.Bengals.Youcancomeupwithtenmoreinthenextminutewithouttryinghard.Can’t we all just get along, as Rodney King implored us after the horrible

outbreak of interracial violence in 1992 LosAngeles? I doubt it. Tribalism isdeeplywiredandnogroupistightly-knitwithoutthe“other.”Thereisapriceofadmissionforthevariousformsofcontentment.Itisraretotapthatdeeperveinofmeaningwithoutdrippingsomeblood.

Control

Humanscravecontrol.Wewant todetermineourowndestiny.Wedon’twantotherstotelluswhattodo.Ourpreternaturalinstinctforself-determinationandself-definitionisanindeliblequalityofthehumancondition.Thedeepest-seated instinct for anybiological organism is survival.Wehave

physicalneeds—food,water,oxygen—thatpermitustopropagate.Butwehaveinnate psychological needs as well. One, just discussed, is the need forconnection.Anotherisforautonomy.(Yes,thoseareinconflict—we’lladdressthisattheendofthechapter.)Wewanttobefreetobeabletochoosethelifewewantforourselvesandthoseimportanttous.In a brilliant 1958 lecture on the nature of liberty, philosopher IsaiahBerlin

describedthis imperative:“Iwishmylifeanddecisionsdependonmyself,notonexternalforcesofwhateverkind.Iwishtobetheinstrumentofmyown,notothermen’s, acts ofwills. I will be a subject, not an object; to bemoved byreasons…which aremy own, not by causes that affectme, as itwere, fromoutside. I wish to be a somebody, not nobody; a doer – deciding, not beingdecidedfor,self-directedandnotacteduponbyexternalnatureorbyothermenasifIwerethingorananimal,oraslaveincapableofplayingahumanrole.”70ResearchsupportsthemeritinBerlin’sdescription.Inonestudy,EdwardDeci

and others showed that peoplewho set their own goals, versus thosewho aretoldwhatdoorcareabout,weremoredeeplyengagedintheirtasks,learnedorproducedbetter,andfoundmoreenjoyment.71Thosewithautonomyputmoreofthemselvesintotasks,andsuchgenuineeffortproducesnotonlybetterexternaloutcomes but also internal satisfaction. Conversely, responding to coercion orobligationisuninspiring,evendiscouraging.It’s also true thatwe still value control, evenwhen it’s illusory. Years ago,

psychologist Ellen Langer uncovered the tendency for people to overestimatetheirabilitytocontrolevents.Langerandothersdemonstratedhowthisillusiondrives decisions that would otherwise seem odd. In a lottery, for example,subjectsweregiveneitherarandomticketorwereallowedtochoosetheirown.Theodds in the lotterywereestablishedaheadof timeand theoddsacrossall

tickets—random or chosen—were mathematically identical. However, thosewhohadchosen theirown ticket expressedmoreconfidence inwinning.Theywere also unwilling to swap their tickets for ones in different games with ahigher chance of winning. We believe we have control over situations evenwhenwecanbeshownwedonot.Thereappearstobeastrongrelationshipbetweenone’ssenseoffreedomand

feelingsofhappiness.Inananalysisofnationalsurveysspanningfourdecades,University of Michigan political scientist Ronald Inglehart observes that“economicdevelopment, democratization, and increasing social tolerancehaveincreasedtheextenttowhichpeopleperceivethattheyhavefreechoice,whichinturnhasledtohigherlevelsofhappinessaroundtheworld.”72While making intuitive sense, these findings have limits. First, while more

freedom and choice sound good, they have diminishing returns. There aretipping points in life’s many domains—investing, consumption, education,health, leisure, etc.—where too much choice can undermine happiness. The“paradox of choice,” coined by psychologist Barry Schwartz, states that wecravemorechoicesbutthemorewehave,themoremiserablewebecome.73ThisinsightsquareswithMartySeligman’sobservationthatawaveofdepressionhasstrucktheWesternworld,despiteasharpriseinprosperity.Second,we shouldnotmistakeautonomy for theneed forunfettered liberty.

Ofcourse, somewant todowhat theywantwhenever theywantandsee theirabilitytodosoasanaturalright.ButplayingacartoonishheroinanAynRandnovel is not the key to findingmeaning. In fact, it’s sometimes theminor orfleetinglibertiesthatthrowintostarkreliefwhylifeisworthliving.Oneofhumanity’sgreatparadoxesisthattherobberyoflibertycanhighlight

thevalueandresiliencyofthehumanspirit.Thedeprivationofphysicalfreedomand basic rights prompts some of themost life-affirming stories we know, inboth life and art. Here are a few examples that aremeaningful tome:VictorFrankl,Naziconcentrationcampsurvivor,Man’sSearchforMeaning:“Wewholived in concentration camps can remember themenwhowalked through thehuts comforting others, giving away their last piece of bread. Theymay havebeenfewinnumber,buttheyoffersufficientproofthateverythingcanbetakenfrom aman but one thing: the last of the human freedoms – to choose one’sattitudeinanygivencircumstances,tochooseone’sownway.”AlexanderSolzhenitsyn,Sovietgulag survivor,TheGulagArchipelago: “ItwasonlywhenIlaythererottingonprisonstrawthatIsensedwithinmyselfthe first stirrings of good. Gradually it was disclosed to me that the line

separatinggoodandevilpassesnotthroughstates,norbetweenclasses,norbetweenpoliticalpartieseither—but right througheveryhumanheart—andthroughallhumanhearts…AndthatiswhyIturnbacktotheyearsofmyimprisonment and say, sometimes to the astonishment to those about me,‘Blessyou,prison,forhavingbeeninmylife!’”James Stockdale, North Vietnamese prisoner-of-war survivor, CourageUnderFire:ChannelingEpictetusandtheancientStoicsduringfouryearsofimprisonment and torture, hewrote that: “Each individual brings about hisowngoodandhisownevil,hisgoodfortune,his ill fortune,hishappiness,andhiswretchedness…Sufferingwasalldownhere—remorseatdestroyingyourself.”Andy DuFresne, The Shawshank Redemption (fiction): “I guess it comesdowntoasimplechoice,really.Getbusylivingorgetbusydying.”The ability to define one’s own predicament, control one’s attitude, and

respondtoadversitycanbeanincrediblesourceofinnerstrength.74Wewanttobeincontrolofourlife’snarrative.Meaningisultimatelyfoundin

thestorieswetellaboutourselves.Weareliterallyauthorsofourownmission,with opportunity to edit those stories as we see fit. Peoplewith a good storyaboutwhotheyareandwherethey’regoingaremorecontentthanthosewithoutone.75Storiesgiveusasenseofpurpose,especiallywhenthenarrativearcbendstoward progress. We find meaning and motivation when we believe we aremoving toward a goal.We can embrace what cutting-edge neuroscience nowcalls“thefutureself,”anideawe’llreturntointhefinalchapter.Inthecycleofplanningandadapting,demonstratingwillpower(controlbefore

the fact) and resilience (control after the fact) is critical.76 In a large-scale andlong-termstudyledbyMarkSeery,itwasfoundthat“peoplewithahistoryofsome lifetimeadversity reportedbettermentalhealth andwell-beingoutcomesthannotonlypeoplewithahighhistoryofadversitybutalsothanpeoplewithnohistoryofadversity.”77Elsewhere, psychologistAngelaDuckworth observed that a large percentage

ofnewcadetsattheUnitedStatesMilitaryAcademyatWestPointdroppedoutwithinafewmonthsaftermatriculating,despitebeingamongthemostqualifiedand heralded young men and women in America. Duckworth argued that acombination of passion and perseverance, what she calls “grit,” distinguishedthose who made it versus those who didn’t. Those with the right attitude

survived.While “What doesn’t kill usmakes us stronger” is one of themoretiredphrasesinourculture,itendsupbeingtrue.

Competence

Fortwodecades,ShannonMulcahywasemployedbyRexnord,amultinationalcorporation which makes specialized parts for vehicles and other motorizedequipment. The New York Times ran a front-page feature on Shannon with astorythatisunfortunatelytoocommoninmodernglobalcapitalism.78From the age of 25, Shannon was a steelworker at Rexnord’s Indianapolis

plant.Despitenothavinggraduatedfromhighschool,Shannonwasabletoriseintheplant,becominganexpertinmanufacturingcustombearings,acraftbothtechnicalanddangerous.In2016,RexnordannouncedthatitwasmovingitsIndianaoperationstotwo

differentplants,one inTexas, theother inMexico. In losingher job,Shannonsuffered twiceover.First,she losther income.Shehadall theobviousbills topay—mortgage, electricity, gasoline, food—plus her daughter’s college tuitionforPurdueUniversityandthecareofachronicallyillgrandchild.The second losswas that of identity and pride. Being a steelworkerwas an

anchorinatumultuouslifemarkedbydivorce,abuse,and,at times,borderlinepoverty.Shannondescribedherjobasgivingher“asenseofself-worth.”Itwasher “liberator.” Even as the plant’s operationswound down, she accepted thedemoralizingtaskof trainingherreplacements,sayingthat“Istillcare. Idon’tknowwhy.Itbecomesanidentity.Partofyou.”A flashof theobvious:Wework tomakemoney.Wework topay thebills.

Shannon’slossofincomewasdevastating.Aswe’llseelaterinthebook,thereare thresholds at which income from employment will support a “better” or“happier”life.Butworkmeanssomethingmorethanapaycheck.Whatwe“do”inlifeisa

deepsourceofmeaning.Itdefinesus.(What’sthefirstquestionyouusuallygetaskedwhenmeetingastranger?)Beinggoodatsomethingyoucareaboutisoneof life’smostprofoundsourcesof fulfilment.Whenwecanexerciseourcraft,excelatit,andseethatithasapositiveimpactontheworldaroundus,itfeelsgood.

Whenourlaborisdisregarded,disrespected,andunderminedbymisfortuneormalice,we are leftwith a gnawing hole in our soul. The need to express andcontributeviaourworkisanon-negotiablesourceofmeaninginlife.In the early 1970s, as deindustrialization swept theUnited States, columnist

and critic Studs Terkel wrote Working, in which he interviewed Americanworkers about their jobs.79 Though nearly half a century ago, his impressionsringtruewiththeexperienceofShannonMulcahyandotherstoday.AsTerkelobserved,work“isaboutasearchfordailymeaningaswellasdailybread,forrecognitionaswell ascash, forastonishment rather than torpor; in short, forasortofliferatherthanaMondaythroughFridaysortofdying.”Why then are many people miserable in their jobs? This occurs when they

don’t find the work engaging, stimulating, or edifying. The cult classic filmOfficeSpaceisabrilliantsendupofthemoderncorporation,whereworkersatabland technology company spend a goodportionof their day fillingout “TPSreports” and shuffling forms from one department to the next. The movie isfunnybecauseitringstrueofalmostalljobs,atleastinpart.Infact,studieshaveshown that only a tiny percentage of a workforce is highly engaged in theirwork. McKinsey reported that the figure is as little as 2% to 3% in somecountries.80Whatmakesworkerstick?Weneedtopaythebills.Weneedtoearnaliving.

Inthatcontext,onemightexpectthatwithmorepayoradesiredpromotion,werespondwith harder work, better work,more collaboration, fewer difficulties.Likewise, we’ll stop counterproductive behavior or raise our game whendemotionorapaycutlooms.That intuition is largely incorrect, however. In a classic set of experiments,

peoplewhoreceivedamonetaryrewardtoperformaninterestingactivitywerelaterlessintrinsicallymotivatedthanthosewhocompletedthesametaskwithoutthereward.AsorganizationsexpertDanielPinkpointsoutinDrive,“oneofthegreatmisunderstandingsinlifeisthatwerespondinpredictablewaystorewardandpunishment.”A focus on external rewards andpunishment can extinguishintrinsic motivation, diminish performance, crush creativity, crowd out goodbehavior, encourage cheating, become addictive, and foster short-termthinking.81Research shows not only the limited impact of carrots and sticks, but the

strongly positive impact of affirmative feedback on intrinsic motivation.“Threatsofpunishment,deadlines,evaluations,andsurveillanceallunderminedintrinsic motivation, whereas providing people with choice, as well as

acknowledgingtheirfeelingsandperspectives,tendedtoenhancetheirintrinsicmotivation.”82Itisintrinsicmotivation,includingthemasteryandenjoymentofone’scraft,thattrulyelevatesbothindividualsandentireorganizations.Work doesn’t become meaningful without some sense of struggle, without

genuineeffort.Thenotedexpertonmotivation,CarolDweckwrites,“Effort isone of the things that gives meaning to life. Effort means you care aboutsomething,thatsomethingisimportanttoyouandyouarewillingtoworkforit.Itwouldbe an impoverishedexistence if youwerenotwilling tovalue thingsand commit yourself to working toward them.”83 Dweck compellingly arguesthateffortinitselfshouldbevalued.Thegrit,willpower,andresiliencewesawintherealmofcontrolmatterhere,too.Competence isagoodexampleofwhenhappinessandmeaningcandiverge.

For many of us, our most meaningful professional accomplishments requiredhardworkandsacrifice.It’snot“fun,”oratleastnottheconventionaldefinitionoffun.Indeed,themostmeaningfulworkexperiencesofmylifeallinvolvedafairlypainfulprocessofgrinding toward success—finishingmydissertation ingraduate school, traveling ceaselessly to find great investments, passing theexams for theCharteredFinancialAnalyst certification,writingmy first book.Theseweremiserably joyful (joyfullymiserable?)experiencesofwhichIhavevividmemoriesandreceivedgreatlessons.It’snotjustworkthatmatters,buthardwork.

Context

OnApril3,1968,MartinLutherKingJr. spoke toa largecrowd inMemphis,Tennessee.Inhissoaringoratory,heexclaimed:“Somethingishappeninginourworld.Themassesofpeoplearerisingup.”Hespokeofprogress,ofsolidarity,of struggle. He spoke with determination about redress, but not revenge. Heindulged both imagination and fear, closing with these words: “I don’t knowwhat will happen now. We’ve got some difficult days ahead. But it reallydoesn’tmatterwithmenow,becauseI’vebeentothemountaintop.AndIdon’tmind.Likeanybody,Iwouldliketolivealonglife.Longevityhasitsplace.ButI’m not concerned about that now. I just want to do God’s will. And He’sallowedmetogouptothemountain.AndI’velookedover.AndI’veseenthePromisedLand.Imaynotgettherewithyou.ButIwantyoutoknowtonight,thatwe,asapeople,willgettothepromisedland!”Thenextday,Dr.King,just43yearsold,wasassassinated.His fellow traveler,AndrewYoung, saidafterwards, “Healwaysknewsome

speechwouldbehislast.”84TherewasasenseofinevitabilityamongYoungandothers,perhapsincludingKinghimself.Byhiswordsanddeed,hewasacutelyaware of the danger before him. Eyeswide open, he stepped forward, clearlyrecognizingthatsomethingbiggerthanhimselfwasatstake.Sacrifice, even martyrdom, has been part of the human fabric for time

immemorial.We give for something beyond ourselves, where there is higherpurpose. We want—need, actually—our lives to be embedded in a broadercontext. According to Marty Seligman, human beings want “meaning andpurposeinlife.”Toachievethat involves“belongingtoandservingsomethingthatyoubelieveisbiggerthantheself.”85Theforkintheroadtoflourishinsteadofflounderismarkedbypurpose.King’s purpose was found in his spiritual and civic determination. The

attachment to something bigger arrives in many forms but religion andspirituality have been the most consequential. Humans have looked to the

heavens,literallyandfiguratively,fortheanswerstolife’sgreatestmysteries.InJudaic Scholar Abraham Heschel’s elegant phrase, “Religion begins with aconsciousness that something is asked of us.”86We live in search of wonder.Overthemillennia,faithhasbeenthenorthstarinthatsearch.Yetthereareotherstarsinthesky.Countlessmenandwomenhavegivenlife

andlimbfornationortribe.Howmanyofthestorieswetelleachotherandreadabout focus onwartime triumph and sacrifice? In life and literature, the goodguysfightforothers.Thebadguysfightforthemselves.Heroeshavecontext.

IntersectionsFaith and patriotism as expressions of purpose open a door to discuss the all-encompassing nature of context. Context is, in a sense, a “catch-all” foreudaimonia. Take a look at this graphic. It’s how I’ve come to imagine theoverlapandinterplayamongthe4C’s.

Threeofthecirclesintersecteachother,whilecontextsurroundsthemall.Onecouldsuggest thatContext isa fourthcircle thatoverlapswith theother three,but the available psychology seems to suggest that attachment to somethingbiggerthanoneselfencompasseselementsoftheothers.Howdoeseachofusdefinewhatmattersmost?Aswenavigatelife’supsand

downs we subconsciously engage these either individually or in combination.We push down the path of least resistance.Work sucks, but there is family.Divorce looms, but at least you have your friends. And so forth. A port isavailableinalmostanystorm.There are synergies in the intersections. With religion, there is potentially

powerful interplay between connection and context, when religious beliefcombines with religious affiliation. Jonathan Haidt smartly observes that“Whatevertheoriginsofreligiosity,nearlyallreligionshaveculturallyevolvedcomplexesofpractices,stories,andnormsthatworktogethertosuppresstheselfandconnectpeople to somethingbeyond the self.”87Second, there is a similarcombination of connection and contextwith nationalism, as nations and tribesare rooted in commonmyths.But, struggles of national independence or self-

determination also draw in control. In a third example, athletics fusescompetenceandconnection.Ifyoulistentoalmostanyinterviewwithaformerprofessionalathlete,they’llremarkthatwhattheymissthemostfromtheirdaysofplayingballwasnotsomuchthesportasthecomradery.The diagram highlights not just synergies but deep tensions as well. Most

prominent is the conflict between self and group, between control andconnection.Doyouwanttochartyourowncourseorgoalongwiththegroup?At the trivial level, nearly every movie about teen angst is about the tensionbetweensocietalpressuresversus“beingyourself.”EachofuswassomebodyinTheBreakfastClub.Ataseriouslevel,thiscanbeamajorsourceoflifestressandsadness.This tension cannot be resolved. It’s literally wired into our genetic code.

Some, most notably Richard Dawkins in The Selfish Gene, contend that theindividualorganismistheprimaryunitofnaturalselectionandevolution.Othersprovidecompellingevidencethat thegroup is theprimaryunit innature.88 I’mnotanevolutionarybiologist,soIcouldn’tpossiblyknowwho’sright.ButIdosee a simpler path forward: To achieve more deeply experienced forms ofcontentment, our mission in life must be self-directed but not self-regarding.Thisrazor’sedgeissharp:Toatonceembraceandrejecttheego.BreneBrownofferssomedirectionwhenshewrites:“Truebelongingrequiresustobelieveinandbelongtoourselvessofullythatwecanfindsacrednessbothinbeingapartofsomethingandinstandingalonewhennecessary.”89Where do you find your juice? In any specific bucket, or in the crossovers?

How has that changed over the course of your life? Are these experiences afunctionofdeliberateactivityorhasitjustsortofhappened?Therearenorightorwronganswers to thesequestions.Thediagramisanopportunityforyoutoevaluatewhatmatterstoyou,andtoreflectonhowthathasevolvedovertime.

Conclusion So that’s that. Such is the content of ameaningful life. It anchors on a sense of belonging, abelief in an ability to control one’s own destiny, being

goodatavocationyouvalue,andfeelingsomesenseofconnection to something outside yourself. A lifetime ofstudycouldn’tgettothebottomofallthis,buthopefullyI’ve teed things up in a way that allows us to moveforwardinourquesttoconnectmeaningandmoney.Thefollowingtableoffersabriefsummary.Ibucketcontrolandcompetence

aspartofour inner lives, theparts thataremoreclosely tied to the individual.Thepursuitsofconnectionandcontextresideoutsidetheindividual,towardthesocial.Thereistensionbetweenourinnerandouterlives.Wealsodon’twanttolosesightofthefactthat,asexplainedbytheDalaiLamaandArchbishopTutu,thepathfromeverydayhappinesstodeeperisjoyispavedwithstruggle,andinsomecasessuffering.

Thecircleillustratestheprocessofwritingandeditingone’sownstory.It’sadynamicof adaptingorbecoming.This isn’t all armchair contemplation;quitethe contrary, it is hard work in which disappointment and sadness areunavoidablestonesalongthepath.Happinessisnotonlyadescription.It’salsoaprocess,evenaskill.

Now money enters the equation. If wealth is funded contentment, the lastcouplechaptersaddressedone-halfoftheformula.Weneedtofigureoutifwecanaffordameaningfullife.It’sacrassformulation,butonethat’sinescapablein our complex and, frankly, expensive, world. Purpose and prosperity aren’tnecessarilyamatchforeachother.Whatdoesitmeanto“afford”connectionorcompetenceorcontrol?Wedon’t

writechecksmadeoutto“Purpose.”Ordowe?

56.DalaiLamaandDesmondTutu,TheBookof Joy:LastingHappiness inaChangingWorld(Penguin,2016),pp.29–30.57.SebastianUnger,Tribe:OnHomecomingandBelonging(Twelve,2016).58. Matthew D. Lieberman, Social: Why Our Brains Are Wired to Connect(Crown,2013),p.9.59.HugoMercierandDanSperber,TheEnigmaofReason(HarvardUniversityPress,2017).60. For a survey, see IchiroKawachi and Lisa F. Berkman, “Social Ties andMentalHealth”(2001)JournalofUrbanHealth78(3):458–67.61.Wilson,Redirect,p.49.62.RuthWhipman,“Happiness isotherpeople,”NewYorkTimes,27October2017.63. Ed Diener and Martin E. P. Seligman, “Very Happy People” (2002)PsychologicalScience13(1):81–4.64. John Cacioppo, Loneliness: Human Nature and the Need for SocialConnection (W.W.NortonandCompany,2008).SeealsoGillianMatthewsetal., “Dorsal Raphe Dopamine Neurons Represent the Experience of SocialIsolation”(2016),Cell164:617–31.

65.KatieHafner,“ResearchersConfrontanEpidemicofLoneliness,”NewYorkTimes,5September2016.66. Kawachi and Berkman, “Social Ties andMental Health”; Dhruv Khullar,“How Social Isolation Is Killing Us,” New York Times, 22 December 2016;JacquelineOldsandRichardS.Schwartz,TheLonelyAmerican:DriftingApartintheTwenty-FirstCentury(BeaconPress,2009).67.RobertD.Putnam,BowlingAlone:TheCollapseandRevivalofAmericanCommunity(Simon&Schuster,2000).68. JoshuaGreene,Moral Tribes:Emotion,Reason, and theGapBetweenUsandThem(Penguin,2014).AndJonathanHaidtinTheRighteousMind:Weare“groupish”: “Intergroup competition is one of the more relentless features ofmodernsocietyanditisunquestionably,evenattheneurologicallevel,aprimesourceofindividualidentity.”69.YuvalHarari,Sapiens:ABriefHistoryofHumankind(HarperCollins,2015),p.171.70.IsaiahBerlin,“TwoConceptsofLiberty,”FourEssaysOnLiberty(OxfordUniversityPress,1969).71.MaartenVansteenkiste,WillyLens,andEdwardL.Deci (2006), “IntrinsicVersus Extrinsic Goal Contents in Self-Determination Theory,” Educationalpsychologist,41(1):19–31.72. Ronald Inglehart et al. (2008), “Development, Freedom, and RisingHappinessAGlobal Perspective (1981–2007),”Perspectives onPsychologicalScience3(4):264-285;EstebanOrtiz-OspinaandMaxRoser(2017),“HappinessandLifeSatisfaction,”ourworldindata.org/happiness-and-life-satisfaction.73.ErichFromm,EscapefromFreedom(Penguin,1941).74.VictorFrankl,Man’sSearchforMeaning(Beacon,2006(1946));AlexanderSolzhenitsyn,TheGulagArchipelago (TheHarvillPress, 2003 (1973)); JamesStockdale,“CourageUnderFire:TestingEpictetus’DoctrinesinaLaboratoryofHumanBehavior,”SpeechdeliveredatKing’sCollege,London,15November1993,hvr.co/1PURTQb.75.Peoplewhohavesuchanarrative–whofeel incontrolof their lives,havegoalsoftheirownchoosing,andmakeprogresstowardthosegoals–arehappierthanpeoplewhodonot.”(Redirect,p.69).76.BaumeisterandTierney,Willpower;Kahneman,Thinking,FastandSlow,p.41.77.MarkD. Seery, E.Holman,Alison Silver, andRoxaneCohen, “Whatever

Does Not Kill Us: Cumulative Lifetime Adversity, Vulnerability, andResilience,” Journal of Personality and Social Psychology 99(6), December2010,pp.1025-41;MarkD.Seery,“Resilience:ASilverLiningtoExperiencingAdverse Life Events,” Current Directions in Psychological Science 20,December2011,pp.390–4.78.FarahStockman,“BeingaSteelworkerLiberatedHer.ThenHerJobMovedtoMexico,”NewYorkTimes,14October2017.79.StudsTerkel,Working:PeopleTalkAboutWhatTheyDoAllDayandHowTheyFeelAboutWhatTheyDo(NewPress,1997).80. Cited in Pink, Drive: The Surprising Truth About What Motivates Us(RiverheadBooks,2011),p.109.81.Foranoverviewofthesestudiesandtheirinsights,seePink,Drive.82.DeciandRyan,“SelfDetermination,”2015.83. Carol Dweck, Self-Theories: Their Role in Motivation, Personality, andDevelopment(PsychologyPress,2000),p.41.84. Quoted in Aaron Crouch, “Martin Luther King’s Last Speech,”ChristianScienceMonitor,4April2011,bit.ly/2EZMrxd.85. Seligman, Flourishing, p. 12. See also Mihaly Csikszentmihalyi, “Onecannot lead a life that is truly excellent without feeling that one belongs tosomethinggreaterandmorepermanentthanoneself,”quotedinPink,Drive,p.142.86.AbrahamJoshuaHeschel,GodinSearchofMan(Farrar,StrausandGiroux,1976),p.162.87.JonathanHaidt,“TheNewSynthesisinMoralPsychology”(2007),Science316,p.1001.88. Richard Dawkins, The Selfish Gene: 40th Anniversary Edition (OxfordUniversity Press, 2016); David Sloan Wilson,Does Altruism Exist? Culture,Genes, and the Welfare of Others (Yale University Press, 2015); Seligman,Flourish,p.22–3.89.Brown,BravingtheWilderness.

D

5.Yes,NotReally,ItDepends“Idon’tcaretoomuchformoney,moneycan’tbuymelove.”

–PaulMcCartney“Whoeversaidmoneycan’tbuyhappinessdidn’tknowwheretoshop.”

–GertrudeSteinProsperityrisingOESMONEYBUYhappiness?TheanswertothatquestioncanbesummarizedasYes,NotReally,It

Depends:

Yes:Firstandforemost,moneyalleviatespoverty,whichisdemoralizinganddeadly.Itcanalleviatepain.Itcanpurchaseshort-termpleasure.And,itcanunderwritelong-termjoy.Not Really: Happiness can be achieved independent of one’s station inlife. The poor can be content, the rich, miserable. Day-to-day, affectoccurs mostly independent of money. Its potency to purchase joy andalleviatepainhaslimits.ItDepends:Thescienceofhappinessissufficientlynewandinconclusive,so anyone contemplating the issuemust be comfortable with shades ofgreyandunknowns.

Answeringaquestion,“It’scomplicated,”feelslikekindofacop-out.Buthereit’sanhonestassessmentofthecurrentresearch.Further, thismixedanswerinnowayinterruptstheengineofadaptivesimplicity.Begin by appreciating the broader historical context in which we’re even

askingthequestion.Theimprovementinmaterialwell-beinginrecentdecades,let alone the past few centuries, has been extraordinary.90 Formuchof humanhistory,peopleendureddifficultandfilthyconditions,and thendiedyoung. Inthe mid-18th century, as the Industrial Revolution ramped up, the averageEuropean lived to around his mid-30s, although the numbers are skeweddownwardbecauseofthehighincidenceofinfantmortality.91Thefiguresfrompre-RevolutionaryAmericaarecomparable.Lifehasgottenmuchbetter.92Weenjoymoremoney,betterhealth,andlonger

lives. Even many of those who don’t live with great bounty have still foundfreedom fromdeprivation.Global poverty has been on a sharp decline for the

last twocenturies. It’snotallgoodnewsasNobelLaureateAngusDeatonhasconvincingly shown that a rise in living conditions for some has resulted ingreater inequality, which creates its own set of health, political, and socialchallenges.Well-beinghasaccruedtosome,butnotall.Evenso,thereadersofTheGeometryofWealthliveinanageofunprecedentedcomfort.Life is “better,” but are we happier? Across and within societies, do richer

individuals lead more fulfilling lives? Here philosophers must step aside forscience. Aristotle and others have offered reasoned argument, but evidencematters. Thousands of studies have tackled the issue, but in aggregate, theliterature remains “vast and inconclusive.”93 In a large swath of inter-andintranationalstudies,somepointtoastrongrelationshipwhileotherssaythereisnone.94Whatgives?

Fastandslow,happyandsadInakindofJusticeLeagueof happiness researchers, Daniel Kahneman and AngusDeaton teamed up to make sense of the issue.95 Theiranswer,likewithAristotleandtheDalaiLama,hingesonsemantics.Analyzing survey data ofmore than 450,000Americans, the two concluded that higher incomes dobuyhappiness,butdifferently for its experiencedversusreflectiveversions.96

This seminal finding “underscores the importance of the distinction betweenthejudgmentsindividualsmakewhentheythinkabouttheirlifeandthefeelingsthat they experience as they live it.” In other words, the classic distinctionbetween hedonic (experienced) and eudaimonic (reflective) happiness remainsvital.ThisalsosuggeststhatSystem1andSystem2thinkingareassociatedwithdifferentformsofcontentmentinlife.Kahneman and Deaton make a two-pronged argument. First, the impact of

money on our day-to-day affect dissipates at an annual income of around$75,000 per year, or something approximating what many would consider amiddle-classincome.Thesurveyaskedpeopleaboutthefrequencyandintensityofemotionstheyfeltinthepastday—“theemotionalqualityofanindividual’severydayexperience”—including“joy, fascination,anxiety, sadness, angerand

affectionthatmakeone’slifepleasantorunpleasant.”Leadingupthatthreshold,incomehadapositiveimpact.

It’snothardtosurmiseanexplanationforthisupwardslope.Atlowerincomelevels,especiallyinpoverty,itisdifficulttosatisfybasicneeds.Untiltheneedsfor food, shelter, medicine, and other necessities are met, daily happiness ishardertocomeby.Abovethatthreshold,however,theimpactofahigherincomedidnotincrease

positiveaffect.Goodandbadmoodscomeandgoatthesamepaceforsomeonemaking $100,000 per year as someonemaking $1million per year—adjustingfor disposition. A middle-class income meets many of life’s basic comforts,beyondwhichthereisnoopportunityforadditionalexperiencedhappiness.Kahneman andDeaton’s second finding raisesmore eyebrows than the first.

They observed that reflective happiness doesnot cap out at a specific incomelevel,asshowninthenextgraphic.

This finding is based on responses to Cantril’s Self-Anchoring Scale.97 Inpositivepsychology,thescaleisawell-knownandhighlyregardedmeasureofbroad life evaluation, of eudaimonic happiness. It reads: “Please imagine aladderwithstepsnumberedfrom0atthebottomto10atthetop.Thetopoftheladder represents the best possible life for you, and the bottom of the ladderrepresentstheworstpossiblelifeforyou.Onwhichstepoftheladderwouldyousayyoupersonallyfeelyoustandatthistime?”Kahneman and Deaton found no evidence of a satiation point at which

reflective happiness diminished with income: Higher incomes contributed tosteppinghigherontheCantrilLadder,evenamongthosewhowerealreadywelloff. Other large-scale studies have corroborated a robust relationship betweenincomeandreflectivehappiness.Asonestudyputit,“Whiletheideathatthereissomecritical levelof incomebeyondwhich incomeno longer impactswell-being is intuitively appealing, it is at odds with the data.”98 In other words,moneybuyshappiness.Itisimportanttoappreciatethatthesefindingsarebasedonchangerelativeto

whereonehadbeen,versusachievementofanabsolutelevel.A$1,000raisefora recent college graduate will have a much greater impact than it does for acompany’sCEO. Thus,while eudaimonia and income appear to be positivelycorrelated,itdoesn’tfollowthatsomeonewhomakes$1millionperyearistentimes“happier”thansomeonemaking$100,000peryear.Athigherandhigherlevels, the impact of making more tapers off and other considerations play abiggerrole.

I’vecombinedKahnemanandDeaton’stwofindingstoarriveatthefollowingdrawing, which begins to capture the uneasy “kind of does, kind of doesn’t”instinctmanyofusfeelaboutmoneyandhappiness.

Onemightgetpastthispuzzlebyprioritizingoneformofhappinessovertheother. Aristotle threw his hat in the ring for eudaimonia, at odds with thehedonists.Fast forwardacouplemillenniaandKahnemanseems to tilt towardthe preeminence of experienced happiness, arguing that it’s day-to-day affectthatmoldsourmindsmostofthetime.Idon’tbelievethatwecanchooseoneortheother,inthesamesensethatwecan’tchoosebetweenSystem1andSystem2thinking,astheycomeasaninseparablepackage.Infact,MartySeligmanhasargued that to truly “flourish,” people need to achieve along metrics of bothexperiencedandreflectivehappiness.

UnderstandingtheforkintheroadAdaptivesimplicity—thepathtowardwealth—requiresanexplanationforthesefindings. Why is our daily mood largely unrelated tomoney, past a threshold income level, but our quest for

eudaimonia appears to benefit from more and moremoney?Threedynamicsdeepenourunderstandingofthisfinding:

1. Webecomequicklyaccustomedtomostofthecomfortsinourlife.2. Money is more effective at diminishing sadness than increasing

happiness.3. Ifallocatedwisely,moneycanunderwritetheFourC’s,whichconstitute

reflectivehappiness.

Let’sdiscusseachinturn.

Runninginplace“Happinessiswhatyougetrightbeforeyouwantmorehappiness.”Such was the uplifting sentiment of Don Draper, Mad Men’s advertising

genius. Just like his campaigns forGlo-Coat and Jaguar,Draper’s instincts onhumanmotivationwere spot on.Wewantwhatwewant untilwewant somemore.Draper anticipated one of themostwidely shared findings among happiness

researchers:Aprocess called “hedonic adaptation”determines thatwequicklybecome accustomed to most things in our lives. As a result, experiencedhappinessisoftenfleeting.Hedonicadaptationunderminesourabilitytomakebetterchoicesaboutfuture

happiness,especiallytheexperiencedhappinessthatshapesourdailyroutines.Itoperates at both macro and micro levels. Prosperity has spiked in recentcenturies,butaslifegetsbetter,expectationsareraised,whichinturnbecomeasourceofpotentialdisappointment.99Thishasoccurredatthemostfundamentallevelsofhealthandwell-being.Forexample,highratesofinfantmortalitywerethenorminmanycountriesuntilrelativelyrecently.Advancesinmedicineandlifestyle have led to its very sharp decline, setting quite different expectationstodaycomparedtopreviousgenerations.Innovation has also brought waves of technological conveniences, including

electricity, automobiles, indoor plumbing, air travel, air conditioning,refrigeration, washing machines, and mobile phones. Richer humans becomeensnaredina“luxurytrap,” inwhichformerlyunimaginable inventionsevolvefrommind-blowingtoluxuriestotaken-for-grantedtonecessary.Ican’timagine

living without a refrigerator or airplanes, but my great-grandparents certainlycould.Overtime,theamazingbecomesnormal.On amicro level, our daily lives are defined by an always-running hedonic

treadmill on which the satisfaction associated with good or bad outcomesdissipates. In a landmark study of how paraplegics and lottery winnersrespondedtotheirbadorgoodfortunes,agroupofpsychologistsfoundthatinboth cases, people grew accustomed to their new situations quickly, andgenerallyreturnedtotheirpre-eventlevelofhappinessorsadness.100We’realwaysattemptingtomoveonfromwherewejustwere.Afterawhile,

thosewhowonorinheritedlargesumsofmoneymadetheir“dreampurchases”and settled back into a normal daily routine, in which the bigger house andfanciercarsdidn’tdelightall thatmuch.Meanwhile,fastrichescanunderminelife’s more meaningful pursuits. Social connection deteriorates as many new“friends”arrivetopartakeinyourspoils.Nolongerneedingtoworkunderminesthe joy attained from being engaged in our jobs. We have more control butperhapsabroaderpurposefeelsmoreelusive.The samedynamicworks in reversewith tragedy. Illnessorhardshipcanbe

devastating. After some time, however, the acceptance of the “new normal”kicks in anddaily affect from there forward is level set.Take the caseof latefamed astrophysicist Stephen Hawking, who became severely crippled at ayoung age due to a neurological disorder. He remarked later in life, afterextraordinaryprofessionalsuccess, that“MyexpectationswerereducedtozerowhenIwastwenty-one.Everythingsincethenhasbeenabonus.”101WecanalsorecallthetalesofVictorFrankl,AlexanderSolzhenitsyn,andJamesStockdale,whotranscendedhorrificcircumstances.Thehedonictreadmilldefinesourdailypursuitofexperiencedhappiness,butit

doesnotnegatethefulfillmentgeneratedbymakingprogresstowardgoals.Wehavehopesanddreams,andwecanfeelasenseofpleasureorlossastheygrowcloserorrecedeintothedistance.Joycanstemfromasenseofmovingforwardfrom wherever we currently are. Someone in the front of the line movingbackwards is likely less happy than someone toward the backwho ismovingforward. The gratifying feeling of progress is not just a preference but ishardwired intous.According to JonathanHaidt, “Adaptation is, inpart, just aproperty of neurons: Nerve cells respond vigorously to new stimuli, butgraduallythey‘habituate,’firinglesstostimulithattheyhavebecomeusedto.Itischangethatcontainsvitalinformation,notsteadystates.”102

Indeed, as our journey pushes from purpose to priorities to tactics, that firststage—the circle—isdefinedby this neural carousel.Haidt says thatwe “takeadaptationtocognitiveextremes.Wedon’tjusthabituate,werecalibrate.”Witheverymetgoal,wethenpushontothenextobjective.Witheverysetback,weretoolandeithertryagainorredefinethenexttarget.

Thetreadmillmaysoundlikeadizzyingexperience,butit’salsothemotorofprogress. The push for the constructive elements of “more”—higher, better,smarter,faster,bigger—sitsatthecoreofourevolutionarysuccess.

HedgingsadnessThe opposite of happiness is not sadness. They are not poles of the sameemotionalspectrum.Commutingmiseryandincreasingpleasure—negativeandpositiveaffect—arerelatedbutdistinctneuralreflexes.Ifgivenachoicetoavoidpain or enjoy pleasure, instinct would push us toward stopping whatever ishurtingus.Commutingmiseryisthepriority.The survival instinct that is carriedoutbySystem1 thinkinghas fascinating

implicationsforhowaperson’smoneylifeisconnectedtothequestforwealth.Inparticular,thereisemergingevidencethatahigherincomemayhavemoreofanimpactonlesseningsadnessthanincreasinghappiness.In 2014, a group of researchers conducted the first large scale study of the

relationship between money and sadness. How do higher incomes impactsadness, and does it differ from the income/happiness nexus? PsychologistKostadinKushlevandhisteamconfirmedthathigherincomehaslimitedimpactonexperiencedhappiness,similartothefindingsofKahnemanandDeaton.Thatsaid, higher incomewas effective in diminishing sadness. The following tablesummarizes their findings.103Across13mundaneactivities,higher incomewasassociatedwithlowersadness.

In activities like commuting, working, or exercising, for example, moreincome is strongly associatedwith less sadness.The converse is not generallytrue: In almost none of those same activities did higher incomes lead tomoreexperiencedhappiness.“Poorerpeoplefeelsadderthanwealthierpeoplebecauseincomepredictsgreatersadnessthroughoutthedayregardlessofwhatpeoplearedoing.”104Imaginewakinguponacoldmorningandfindingyourcarbatteryhasdied,

making it impossible to get to work. Or coming home to a leaky roof andwaterlogged floors.With enough funds, these nuisances are solved quickly ornever happen to begin with. Some of life’s more serious difficulties can besolved, in part, by writing a check. We can devote resources to help agingparents, supportawaywardchild,ordealwithpersonalstrife.Moneygivesusoptions for dealingwith adversity.At lower incomes, being unable to addressthese means that not only do misfortunes persist, but we take on feelings ofhelplessnessandvictimhood.

Ultimately,havinglessincomespeakstoadeeperissueofthecontrolwehaveoverourlives.105Oneofthefourtouchstonesofmeaningisautonomy—asenseof independence and self-determination. That sense of control guaranteesnothing; it canbe squandered.But absent control,weare less able to fendoffdangerandseizeopportunity.Indeed, if the daily activities that define the lives ofmany—working, taking

careofkids,goingtoschool,keepingupthehouse,runningerrands,andsoforth—aren’tasourceoftoomuchstressandtoomuchsadness,thenitmeansthatwecan better preserve our finite and limited mental energy to spend on bothexperiencedand reflectivehappiness.Recall that it is tiring to shiftoutof fastthinking into the slow, effortful thinking necessary to be contemplative. If thetankisempty,thenthatshiftishardertomake.

SpendingwiselyChannelingGertrudeStein,money can buy happiness if you shop in the rightplaces, both physically andmentally.Whenmoney is spent to underwrite thesourcesofcontentmentdetailedinthepreviouschapter,then—yes—moneybuyshappiness.“Moneyisanopportunityforhappiness,butitisanopportunitythatpeople routinelysquanderbecause the things they thinkwillmake themhappyoftendon’t.”106Peopledon’tspendwisely.Whenyoureachintoyourwalletandhopethatapurchasebringsjoy,thereare

threebroadcategorieswhereyouhaveabetterchanceatbeingableto“afford”theFourC’s.Thesearewayswecanunderwritemeaningfullives:

ExperienceOthersTime

ExperienceDinnerwithfriends.Caringforasickfamilymember.Concerttickets.Shopping forusedbooks.Familygamenight.Tutoring.Awalk inthedesert.Cooking.SettlersofCatanorTickettoRide.TheTateModerninLondonandtheArtInstituteinChicago.Whirleyball.Volunteeringatalocal food pantry. Yakitori in a Tokyo alley. Dim sum in Wan Chai.Watchingmysister’splay.Bourbon(s)atTheFountainhead.Roadtripwithmywife.Hangingoutwithmykids.Campingwiththewholefamily.The Geometry of Wealth might be the thousandth book to suggest that

experiences provide more happiness than stuff. So be it. The evidencesupportingtheargumentisoverwhelming.107Butwhy?First, experiences—doing, instead of having—deepen social relationships.

Manyof the activities I listed above are, bydefinition, social or are enhancedwhen sharedwith others.One study that looked at a dozen different forms ofdaily consumption found that only one—leisure—was positively related tohappiness.108 Itwasnot the activityper se, but the sharingof experiences thatdrovethosepositiveemotions.Ofcourse,asolojourneyhasitsmerit,butmostexperiencesarecherishedbecauseweenjoythemwithotherpeople.Second, experiences are more immune to hedonic adaptation.109 They are

harder togetused to,unlikematerialgoods,whichare fixed in theirqualities.Experiences can bemoremulti-faceted, stoking different forms of enjoyment.That new luxury car drives you frompointA to pointB, albeitwith comfort,control, and entertainment.But an indulgent vacation can include comfortable

travel, sumptuous lodgings, delicious foods, adventure, and social engagementwith friends and strangers. There’s more to psychically sample from with anexperience.Thus, experienceshelp thwart adaptation.110Wecanmentally revisit them in

wayswecan’twithmaterialpossessions.Ourmemoriescanjumpfromonepartoftheexperiencetoanother,allowingforsavoringofitsvariousdimensions.Inone scenario, we enjoy telling the story of that great day exploring a city; inanother,weconnectwithnewfriendswemetonthetrip.Theseexperiencesaremoreopentopositivereinterpretations.Youprobablywon’tlikeyournewcouchmorethanyoudonow,butyoucancertainlyreimagineatripyoutook.Researchhasshownthatsmaller,frequentexperiencesbetterdefythehedonic

treadmill.Takethesetwoexperiments.Inone,subjectswereeachawardeda$50prize, but somewon two $25 lotteries, while otherswon just one for the fullamount. In another, a group of subjects each received a three-minutemassagesession.One group received two80-secondmassageswith a 20-secondbreak.The other group received a full three-minute massage. In both experiments,peoplereportedachievingmorepleasurefromthefirstinstancewiththeshorterrecurring experiences rather than the longer single experience.111 Therefore,frequentmanicures, theoccasionalweekendgetaway, anda fixed“datenight”withyourpartner,adduptomorethanthatoneelaboratevacationyou’vebeendreamingabout foryears.Choosingbetweenoccasional flowersor thatspecialdiamond for your loved one? Science tells us that over the long run, one’s amuchbetterchoicethantheother.112Experientialgoodsaremoreamenabletopersonalizationthanmaterialgoods,

because we can tailor them to whatever we choose to value—connection,control,competence,orcontext.Inturn,theyaremorelikelytobecomepartofouridentity.Mostpeopleviewexperiencesasmoreself-defining.Whatwe“do”is more closely tied to who we are than the things we have.113 Experiencesbecomepartofyourstory.114

OthersWalking around town one day, you are approached by a friendlystranger.115 She politely introduces herself and asks if you’d like toparticipate in a brief, harmless experiment. Sure, you say. She asks somebasic questions about how you are feeling that day, then hands you anenvelopeandasksyoutocompletethetaskdetailedinside.Youripopentheenvelope to find a $5 bill and this message: “Please spend this $5 todaybefore5pmonagiftforyourselforanyofyourexpenses(e.g.,rent,bills,or

debt).”Noteveryenvelopeshehandedouttostrangerscontainedthesamemessage.A

secondoneread:“Pleasespendthis$5todaybefore5pmonagiftforsomeoneelseoradonationtocharity.”You agree to follow the instructions and then accept a phone call from the

researcher later that evening. On the call, you are asked two questions: First,howhappyareyourightnow?Second,howdidyouspendthemoney?In the real-world results of this experiment, those who received the first

envelope purchased things like coffee or trinkets for themselves or paid aparkingmeter.Thesecondgroupgavegiftstochildren,thehomeless,orothers.The researchers discovered that those who spent money on others weremeasurably happier than thosewho spent it on themselves, even though therewerenotsystematicdifferencesinhappinesslevelsatthebeginningoftheday.Theresearchersevenvariedtheamountofcashintheenvelope.Somereceived$20,not$5.Yetthelargeramounthadzeroimpactoneithergroup’saffect,eventhosewhoweregiven$20tospendonthemselves.The average ratio of personal to pro-social spending ismore than 10-to-1.116

That doesn’t mean we’re living lives of gluttony or indulgence.Most of thatpersonalspendingisforthemortgage,utilities,groceries,orotheressentials.Butwhenpossible,givinghaspositiveconsequencesforthegiver.The feelings are grounded in a neural link between pro-social spending and

experiencedhappiness.Thelinkexistsevenwhensomeoneisforcedtogive.Inone study, subjects commanded to be generous still registered more positiveaffect.117 The links between generosity and happiness are universal, consistentacrosscountriesandincomeranges.Richandpooralikeenjoygiving.Pro-socialspending also has a significant impact on reflective happiness. Like withexperiences, pro-social spending deepens our connections with others.118 Itenhancesoursensesofcontrolandcontext inthatwehavethelibertytoscriptourstoryhoweverweseefitandtieittosomethingbeyondourselves.

Time We live in an age of being “busy.” Many feel overwhelmed byobligations and distractions, leaving scant time to enjoy life’s pleasures,whetheritbefamilytimeorengaginginafavoritehobby.Therearetrade-offsbetweenhavingmoretimeandhavingotherthingsofvalue,especiallymoney.Mostcommonly,wecanworkhardertoearnmore,orwecanstepback in order to enjoy, butmake less.Having bothmore time andmoremoneyisaluxuryfewcanachieve.

Moneycanbuytimebybotheliminatingdistractionsandpurchasingshort-cutsor conveniences, thus opening upmore time to do enjoyable things.The non-stop flight,FastPassatDisneyWorld,orampleand flexiblevacation leaveall“create” time. Experiences require blocks of hours, days, weeks or longer tofulfill. You can’t take a week-long trip in a day. Time is spent to cultivaterelationships,travel,volunteer,andengageinhobbiesandworkweenjoy.Timeaffluence,distinctfromtimepoverty,createsopportunity.Timeaffluencealsoconservesthementalenergyneededtoachievereflective

happiness.119TheFourC’s—connection,control,competence,andcontext—aremore achievable with more time to be rested and contemplative. Conversely,time poverty stings twice: It prevents the opportunity to alleviate sadness orpain, and shrinks the space to improve happiness. It’s hardly a revelation thatworkaholics are often miserable because they’ve forgone most of thetouchstonesinlifethatgenerateadeepersenseofpurpose.In a 2016 study, researchers engaged in five different experiments inwhich

peopleweregiventhechoiceofmoremoneyormoretime.120Ineverysituation,morevotedformoneythantime,butthosewhochosethelatterreportedhigherlevelsof both experienced and reflectivehappiness, evenwhencontrolling forfactors like age, income level, andoccupation.Thosewhopreferred timeovermoneyweremore likely to bemore self-reflective and engage inmore joyfulactivities.Eliminatingdistraction andcreating the space formore achievementdrivescontentment.121

~

Happiness follows a serpentine path through our money lives. Having moremoney can buy daily happiness, but only somuch and for only so long. Thehedonic treadmill is unavoidable. Equally if not more profound, havingmoremoneycanalleviatethepainanddistractionofsadness.That’svaluableinboththeobvious sense, but also in thatby sidesteppingmisfortunewepreserve thementalenergytoengageinmorecontemplativepursuits.A neural tragedy of sorts occurs when our minds are too cluttered and

distracted to be able to shift into the more effortful work of finding deepercontentment.122Thatmeanshaving thewherewithal tounderwritemeaningandbecometrulywealthy.Thefollowingtableofferssomehighlightsonhowwecanfundcontentment.

Conclusion Much remains unknown about theintersection of money and happiness. The existingresearchappears tomakenodistinctionbetweenincomeand total net worth. One is a measure of a monthlypaycheck,buttheotherisaccumulatedassetstobespentany way one would like. Income and assets can bemutually reinforcing, or the dynamic between them canwork in opposite directions: One can have a sizableincome but remain broke due to profligate spending orirresponsible borrowing. Or, one can have a modestincome, but sizable assets—this would explain thecondition of some retirees. We don’t know how theseinteractinthescientificallyrigoroussense.

Second, the$75,000 figure (whichhas gotten a great deal of press since thereleaseof theKahnemanandDeatonstudy)seemsto lackmuchcontext.Evenwithgeneraladjustmentsfortimeandplace,thereisstillsoftnessincomparing1960with2010,andManhattanwithTuscaloosa.Finally,asincomeandwealthinequality grow, and both versions of happiness are influenced by relativecomparisons,we do not knowhow such dynamics seep into themeasurementandoutcomeofsubjectivewell-being.All that said, we know more than enough to continue along the path of

adaptivesimplicity.Wenowdepartthecirclestage,whereadaptationruled,andengage the triangle, whose prime activity is prioritization. In the quest forwealth, the span between purpose and practice is built through preparation,focusingonalimitednumberofelementsthatareinourcontrol.

90. See the data in Max Roser and Esteban Ortiz-Ospina, “Global ExtremePoverty,”bit.ly/2FvAe3E;andAngusDeaton,“Income,Health,andWellBeingaround theWorld: Evidence from the GallupWorld Poll” (2008), Journal ofEconomicPerspectives22(2):53–72.91. For data and sources on life expectancy, see:en.wikipedia.org/wiki/Life_expectancy.92.Thispointhasbeensubjecttointensedebate.SeeDeaton,TheGreatEscape:Health, Wealth, and the Origins of Inequality (Princeton University Press,2015); Steven Pinker, Enlightenment Now: The Case for Reason, Science,Humanism,andProgress (Viking,2018);MattRidley,TheRationalOptimist:HowProsperityEvolves(HarperPerennial,2010);andYuvalHarari,Sapiens:ABrief History of Humankind (HarperCollins, 2015). On freedom fromdeprivation,seeAmartyaSen,DevelopmentasFreedom(Knopf,1999).93.DanielKahnemanandAngusDeaton,“HighIncomeImprovesEvaluationofLifebutNotEmotionalWell-Being”(2010),PNAS107–38:16489–93.94. Much of the scholarship over several decades examined the relationshipbetween standardmacro-economic statistics, especiallyGDP, and self-reportedmeasuresofwell-being.Fora2017survey,seeOECD,“How’sLife?MeasuringWell-Being,”bit.ly/1Oo1mzM.Other important sources includeEstebanOrtiz-Ospina and Max Roser (2018), “Happiness and Life Satisfaction,”bit.ly/2FgdV2x; Ed Diener and Robert Biswas-Diener,Happiness: UnlockingtheMysteriesofPsychologicalWealth(Wiley-Blackwell,2008);andEdDienerand Martin E.P. Seligman (2004), “Beyond Money: Toward an Economy ofWell-Being,” Psychological Science in the Public Interest 5(1): 1–31. The

classic essay in the literature is Richard Easterlin, “Does Economic GrowthImprove the Human Lot? Some Empirical Evidence,” in Paul A. David andMelvin W. Reder, Nations and Households in Economic Growth (AcademicPress,1974).95.KahnemanandDeaton,“HighIncomeImprovesEvaluationofLifebutNotEmotionalWell-Being.”96.Theyemploythreesexpressionsofexperiencedhappiness,orwhattheycall“emotionalwell-being.”Theymeasurepositiveaffect(goodmood),blueaffect(sadness),andstress.97.HadleyCantril,ThePatternofHumanConcerns(RutgersUniversityPress,1966).98. Betsey Stevenson & Justin Wolfers (2008), “Economic Growth andSubjectiveWell-Being: Reassessing the Easterlin Paradox,”Brookings PapersonEconomicActivity39(1).99.Lyubomirsky,How,p.37.100. Philip Brickman, Dan Coates, and Ronnie Janoff-Bulman, “LotteryWinners and Accident Victims: Is Happiness Relative?” (1978), Journal ofPersonalityandSocialPscyhology36(8):917-927.101.MariaVultaggio, “16 Inspirational StephenHawkingQuotesAboutLife,theUniverse,andMore,”Newsweek,14March2008,bit.ly/2q9GQM7.102.Haidt,TheHappinessHypothesis,p.86.103.KostadinKushlev,ElizabethW.Dunn,RichardE.Lucas (2015),“HigherIncomeIsAssociatedwithLessDailySadnessbutnotMoreDailyHappiness,”SocialPsychologicalandPersonalityScience6(5),p.483.104.Kushlev,Dunn,Lucas,“HigherIncome.”105. On how poorer individuals feel less control over their environment, seeWendyJohnsonandRobertF.Kreuger,“HowMoneyBuysHappiness:Geneticand Environmental Processes Linking Finances and Life Satisfaction” (2006),Journal ofPersonality andSocialPsychology 90(4): 680–91; andMichaelW.Kraus,PaulK.Piff, andDacherKeltner, “SocialClass, Sense ofControl, andSocialExplanation”(2009),JournalofPersonalityandSocialPsychology97(6):992–1004.On the relationshipbetweenperceivedself-controlandsadness, seeAlbert Bandura, “Self-Efficacy: Toward a Unifying Theory of BehavioralChange” (1972),Psychological Review 84(2): 191–215; and Ira Roseman, A.Antoniou, and P. Jose, “Appraisal Determinants of Emotions: Constructing aMoreAccurateandComprehensiveTheory”(1996),Cognition&Emotion,10:

241–77.On thedisconnect betweenmoreperceived control andmore joy, seeRosemanetal.,1996.Overall,moneytendstohaveastrongereffectonsadnessthanonhappiness.106. Dunn, Gilbert, andWilson, “IfMoneyDoesn’tMake YouHappy, ThenYouProbablyAren’tSpendingItRight,”p.115.107. Elizabeth Dunn and Michael Norton, Happy Money: The Science ofHappierSpending (Simon&Schuster,2013),Chapter1;LeafVanBovenandThomasGilovich,“ToDoorToHave?ThatIstheQuestion”(2003),JournalofPersonalityandSocialPsychology85(6):1193–202;andCarlRichards,“MoreMoney,MoreSuccess,MoreStuff?Don’tCountonMoreHappiness,”NewYorkTimes,2 July2016.AlsoseeLeonardoNicolao, JulieR. Irwin,andJosephK.Goodman, “Happiness for Scale:Do Experiential PurchasesMakeConsumersHappier thanMaterialPurchases?” (2009),Journal ofConsumerResearch 36:188–98.Theyarguethatexperiencesarebetteratdrivingpositiveoutcomesthanmaterial goods. But in a negative outcome, experiences can be worse thanmaterialgoods.Theysuggestthatconsumersadaptmoreslowlytoexperiences,sothehappinessordisappointmentisprolonged.108.ThomasDeLeireandArielKalilinvestigatedthehappinessassociatedwithspending in a dozen different domains. See their “Does consumption buyhappiness? Evidence from the United States” (2010), International Review ofEconomics57(2):163–76.109.Lyubomirsky,“HedonicAdaptationtoPositiveandNegativeExperiences.”110. According to Lyubomirsky, “The key to achieving increased and lastingwell-being thereby lies in effortful, intentional activities that slow down orpreclude the positive adaptation process.Our hypothesis is that such activitiesshare several properties that potentially help them to effectively forestalladaptation: they are dynamic, episodic, novel, and attention-enticing,” quotedfromsonjalyubomirsky.com.111. Richard Thaler and Eric Johnson, “Gambling with House Money andTryingtoBreakEven:TheEffectsofPriorOutcomesonRiskyChoice”(1990),Management Science 36(6): 643–60; “Interrupted Consumption: DisruptingAdaptation to Hedonic Experiences” (2008), Journal of Marketing Research45(6):654–64.112.EdDieneretal.,“HappinessIstheFrequency,NottheIntensity,ofPositiveVersusNegativeAffect,”inF.Stracketal.(eds.),M.Argyle,&N.,Subjective

Well-Being: An Interdisciplinary Perspective (Pergamon, 1991), pp. 119–39;DunnandNorton,HappyMoney.113.Amajorityofadultsseeexperientialpurchasesasmoreself-definingthanmaterialgoods.Wetendtoattachouridentitytoexperiencesmorethanstuff—it’swhatwe“do”versuswhatwe“have.”SeeVanBovenandGilovich,“ToDoorToHave?”114. Thus, some psychologists support the practice of spending extra on thematerialthingsthatenhanceyourimportantexperiences(e.g.,anicersurfboard,mountainbike,fishingpole,orchessclock).115.DunnandNorton,HappyMoney,Chapter5.116.DunnandNorton,HappyMoney.117.DienerandSeligman,“VeryHappyPeople.”118. ElizabethDunn, LaraAnkin, andMichael Norton, “SpendingMoney onOthersPromotesHappiness”(2008)Science319(5870),pp.1687–8.119. TimKasser andKennonM. Sheldon, “TimeAffluence as a Path towardPersonal Happiness and Ethical Business Practice: Empirical Evidence fromFourStudies”(2009),JournalofBusinessEthics84(2):243–55;KennonM.&Tim Kasser, “Psychological Threat and Extrinsic Goal Pursuit” (2008),MotivationandEmotion32:37–45.120. Hal Hershfield, CassieMogilner, and Uri Barnea, “PeopleWho ChooseTimeOverMoneyAreHappier” (2016),SocialPsychologicalandPersonalityScience7(7):697–706.121.Timepovertycanalso lead tocognitiveoverloadandfeelingsofpressurethatmay interruptone’sability tobepresent in themoment.SeeKirkWarrenBrownandRichardM.Ryan,“TheBenefitsofBeingPresent:MindfulnessandItsRoleinPsychologicalWell-Being”(2003),JournalofPersonalityandSocialPsychology 84(4):822-848. It also inhibits the ability to find“flow,”adeeplyengagedmentalstateinwhichsomeoneiscompletelyabsorbedandlosesasenseof spaceand time; it’s “being in thezone.”Achieving flow is recognizedasasource of deeper happiness. See Mihaly Csikszentmihalyi, Flow: ThePsychologyofOptimalExperience(Harper&Row,1990).122. Emily Badger, “How Poverty Taxes the Brain,” Citylab.com, 29August2013.

PRIORITIES

Thepartwherewesetprioritiestohelpmakebetterdecisions

F

6.SettingPriorities

“Itisremarkablehowmuchlong-termadvantagepeoplelikeushavegottenbytryingtobeconsistentlynotstupid, insteadof tryingtobeveryintelligent.”

–CharlieMunger

“Three,that’sthemagicnumber.”–DeLaSoul

UNDING OUR DREAMS is less fun than imagining them. Even so, whatultimately drives us down the path towardwealth is preparation—making

harddecisionsamidtheuncertaintythatdefineseverydaylife.Untilnowwe’vetalkedthetalk.Nowwemustwalkthewalk.Thestrategyforachievingwealthstartswithmappingpriorities,representedby

triangles,thethreepointsofwhichillustratethreesteps.Withthefirsttriangle,weclarify the threepriorities inour financial lives. I refer to these asProtect,Match, andReach. These priorities reflect the heart ofwhat is conventionallyreferredtoasfinancialplanning,whichisputtingourmoneylivesinorder.Afterthat(andonlyafterthat),weneedtomakesmartinvestmentdecisions,whichwewillconsiderusingthesecondtriangleinChapter7.Intheworldofmoney,what’smostnoticeableisoftenwhat’sleastimportant.

Ourmoneylivesareamishmashofbudgetsandbills,stocksandbonds,savingand spending, mortgages and deeds, wills and estates, insurance and taxes.There’splentytodistractus.Andlikeacatwithashinyball,weusuallyhomeinonwhat’srightinfrontofus.

Withawell-orderedsetofpriorities,wecanpreventthatfromhappening.Togrowandstaywealthy,weshould:

1. Protect.Thinkriskfirst.2. Match.Keepresourcesinbalance.3. Reach.Aspireformore.

Let’slookateachoftheseelementsofthetriangleinturn.

ProtectThebigbetBefore his death in 1662, the French philosopher and mathematician BlaisePascalcontemplatedtheexistenceofGod.That’shardlyunique—itisaquestionthatmanyofus askalong life’s journey—buthismannerof introspection stillreceivesattention350years later,with large implications forourmoney lives.Eschewing a traditional theological approach, he used an early version ofprobabilitytheorytosizeupthedecision.Atstakewasnothinglessthaneternalsalvationordamnation.In what has famously become known as Pascal’s Wager, he weighed the

expectedcosts andbenefitsofbelieving inanultimatedeity.ForPascal, logicwouldnotdeliveradefinitiveanswer:“Godis,orHeisnot.Buttowhichsideshall we incline? Reason can decide nothing here….” In the Judeo-Christiancontext, therewouldbenowaytoknowuntil theendof life,atwhichpoint itwouldbetoolatetoactaccordingly.WhatdidPascaldo?Heplayedtheodds.Hehadtwochoices:tobelieveornot.

And two states of the world: God exists or does not. Thus, there were fourscenarios Pascal had to wrap his brain around. Consider this summary ofPascal’sdecisiontree:

PascalfiguredthatifhechosetobelievebutGoddidnotexist,thedownsidewas limited. He’d make somematerial sacrifices in the here and now (fewerluxuries, more modesty, more charity) without the benefits of a bountifulafterlife.ButchoosingtobelieveinanexistingGodwouldleadtoanafterlifeof

infinite salvation, which is a really good outcome. In the other direction, anatheistinaGodlessuniversecanleadalifeofunfetteredindulgence.Anatheistin a Godly universe will likely endure a terrible afterlife, an eternity ofdamnation.PascalconcludedthatanyreasonablepersonshouldbelieveinGod—oratleast

conduct himself as if. The costs are low and the payoffs are infinite: “If yougain,yougainall;ifyoulose,youlosenothing.Wager,then,withouthesitationthat He is.… There is here an infinity of an infinitely happy life to gain, achanceofgainagainstafinitenumberofchancesofloss,andwhatyoustakeisfinite.”123Thedownsidetoheresy,however,isinfinitelylarge.

LossaversionAs odd as it may sound, Pascal’s 17th century conundrum wonderfullyilluminates the critical first step on the path to growing and staying wealthy.Likeus,hehasnoideawhatthefutureholds.Whenguessingabouttwopossiblestatesoftheworld,thebesthecandoisbasicallyflipacoin.Hisinsightcamenot from assigning the probabilities of a coin flip, but in estimating theconsequencesofheadsortails.Likeourownattemptsatplanningforthefuture,thiswashardlyanexercisein

precision: The chance of a deitywas 50-50 and the consequenceswere either“infinite” or “small.” But by simple back-of-the-envelope reasoning, Pascal’sdecisionwasobvious:Payasmallcost toavoidapotentialcatastrophe.Andifthesmallcostledtolargegains,evenbetter.WhatdrovePascal,justlikeitdoesus,iswhatmodernbehavioristscall“loss

aversion.”Thisisthesimplebutpowerfulideathatthepainoflossesisgreaterthan the pleasure of gains. We are wired this way: Our brains emphasizeavoidinglossesoverachievinggains.124This condition is an important part of System 1 thinking. There’s an

evolutionarylogichere.Thoseamongourdistantancestorswhoweresuperioratassessing riskweremore likely to survive. In thewild, rule one is stay alive.Afterthat,it’sallupside.Psychologistshavefoundthatoursensitivitytolossesisabouttwiceasmuch

asitistogains,aroughly2:1ratio.Thatmeansa$100lossfeelsabouttwiceasbadasa$100gainfeelsgood.Youcouldalsosaythatitwouldtakea$200winto neutralize the anguish of a $100 loss. For most of us, when we go to thecasinoandmakeafewhundredbucks,itfeelsprettygood.Butifweloseafewhundred, it feelsdownrightawful.That’s lossaversion inaction.So isdrivingthereliableprescribedrouteversustakingthechancyshort-cut.Oreatingatthechainrestaurantovertheindependentjoint.Orbeinganemployeeinsteadofanentrepreneur.Andsoon.ModernpsychologistshavereplicatedPascal’slogic.Forexample,peopleare

unwillingtoacceptanevenpayoutwhenitcomestoflippingacoin.Mostwillreason,“Whybother?”Wedemandmuchbetterthanevenoddstomakea50-50bet.DanielKahnemanobserved:“Inmyclasses,Isay:‘I’mgoingtotossacoin,andifit’stails,youlose$10.Howmuchwouldyouhavetogainonwinninginorderforthisgambletobeacceptabletoyou?’Peoplewantmorethan$20beforeitisacceptable.And

now I’ve been doing the same thing with executives or very rich people,asking about tossing a coin and losing $10,000 if it’s tails.And theywant$20,000beforethey’lltakethegamble.”125

Many different experiments have led to the same conclusion: We valueavoiding loss more than achieving gains. For example, when given a choicebetween certainlywinning $1,000 or a 50% chance of winning $2,500, mostpeople do not take the bet. Yes, the probabilistic outcome of the gamble welearnedinStatistics101ishigher($1,250,or50%x$2,500),butthat’snotthewaymostofusthinkaboutthesethings.Humansdon’tnaturallythinkintermsofprobabilities,animportantissuewe’llreturntoinChapter8.Butwhenwe take the inverseof theexact samebet,peopledo theopposite:

Whengivenachoicebetweencertainlylosing$1,000ora50%chanceoflosingeithernothingor$2,500,mosttakethebet,eventhougha$1,250lossexceedsa$1,000 loss. In one casewe avoid risk, in the other casewe seek it out. Thedifferenceisthereferencepoint:wearemoremotivatedtoavoidlossthanmakeagain.Weapproachriskasymmetrically.Welikerisk,especiallyinthequesttoavoidloss.Loss aversion has no “off” switch. It’s always on, animating one of life’s

endlesstensions.Wewantgreatthings,butthedisproportionateimpactoflossesholdsusback.Wearebothaspirationalandscared,greedyandfearful.Welikerisk,we justdon’t like losses.Broadlyspeaking, in life successfullymanagingthe daily balance between risk seeking and risk aversion is the first key towealth.

RiskandrewardArisk-firstmindsetdefinesthe“protect”stageofourthreeparttriangle.Whilethesunsetsinthewestandit’scolderinwinter,muchofwhatweexperienceinlifeishardtopredict.Amiduncertaintyweneedtomakedecisionswehopewillproducegoodoutcomes.That applies tobig things like raisingourchildrenorchoosingacareer,andthemundane,likechoosingalineatthegrocerystoreorwhichmovietosee.Oneconsistentsourceofconfusioniswhatandhowmuchrisk to take toget

wherewewanttogo.Toomuch,andweendupoverourskis.Toolittle,andweneverget started.Acriticalquestion thatalmostalwaysgoesunasked is:Howmuch riskdoesoneneed to take towin?Weseeplentyofpeoplewhoappearrich, but it’s rarelyobvioushowmuch risk they took toget there.Somewererecklesswhileotherswereprudent,butwereallydon’tknow.The answer begins with what sounds to be a simpler question: What’s the

relationshipbetweenriskandreward?This isoneof themostfoundationalyetmisunderstood concepts, not just withmoney but in life. The casual observer(and sometimes even the investment professional)will remark that if you takemorerisk,you’llearnahigherreward.Platitudesabound:“Nopain,nogain,”and “There’s no such thing as a free lunch.” It’s assumed that there’s a linearrelationshipbetweenriskandreward,representedinthissimplegraphic:126

Thoughsensible,thesentimentisonlyhalftrue.Toachievegreatthingsinlife,to come out ahead, to make great investment returns, you need to put yourcapitalatrisk(human,financial,social,orotherwise).Thatcouldbepayingforapriceyeducation,investinginthestockmarket,oraskingtheprettiestgirltotheprom.

Thehalf that’snot true iswhere theproblemlies.Takingmoreriskdoesnotproduce greater returns. Instead, taking more risk increases the variability offutureoutcomes.That’snotgreatbumperstickermaterial.Nevertheless,iftherewere a reliable relationship between more risk and bigger rewards, thentechnicallyyouwouldn’tbetakingmorerisk.Everyonewouldbetlongshotsallthetime.Theredoesremainapositiverelationshipbetweenriskandreward,butaswe

takemorerisk,therangearoundpossibleoutcomesgrows.Asthenextgraphicshows,justbecausewemoveoutontheriskspectrum,wedon’tnecessarilylandfurtheroutontheline,butinsteadsomewhereinarangearoundit.Wemightbemassivelycompensatedforriskingourcapitalorwemightloseitall.Wecan’tknowinadvance.

Imagineyouwanttostartyourownbusiness.Anyentrepreneurknowsthisisabigriskofmoney,time,energy,andevenreputation.Togetstarted,oneusuallyborrowsfromthebankorsellssomeequityinthecompany.Eachstepalongthewaytosuccessisalsoanopportunitytofail.Wecanallthinkofexamplesfromourownlives,fromfriendsorfamily,orevenfrommovies,ofthosewhotriedand failed, at least at first. Recall the movie Joy, starring Jennifer Lawrence,about the real-life housewife who invented the self-wringing mop and wentbankrupt before she later succeeded.Most American movies end on a happynote,butentrepreneurshipusuallydoesn’t.Ninety-sixpercentofbusinessesfailwithin ten years of their founding.127 This is why most people choose

employmentoverownership.Thepotentialrewardofstartingyourownbusinessishuge,butsoisthepotentialdownside.Thelatterweighsmoreheavilyonourpsyches.We can now envision amore realistic relationship between risk and reward:

Each extra ounce of risk we take increases the variability of the outcome,creating a distribution of possible outcomes. This final image shows anexpanding cone of possibilities, both good and bad. This image accuratelydepictstherelationshipbetweenriskandreward.

LesswrongWe constantly navigate a delicate balance between taking enough risk to getahead,butnotsomuchastocourtdanger.Inthatbalancingact,wefirstseektoavoid mistakes, if possible, and to mitigate the consequences of those thatinevitablyoccur.Notlosingisthefirststeptowardwinning.Beingwrongisanunavoidablepartofthehumanexperience.Notthatweaim

toscrewup.Wearealwaysstrivingtosucceed,todobetter,toberight.Inthedomainofmoneyasmuchasanyother,wewanttobemorerightthanothers—to leverage our edge. Trying to be more right is daily bread for most of us:choosingtherightpre-schoolforourtoddlers,makingaccuratesalesprojections,choosing the fastest route home, picking the best stock, anticipating the nextstorm.Thechallengeisthataswepushtobemoreright,weleaveourselvesopento

loss. Themore riskwe take, thewider the range of outcomes, both good andbad.So,atleastatthestart,wedon’twanttobemoreright,wewanttobelesswrong.Thisiswinningbynotlosing.Legendary investorHowardMarksmakesacriticaldistinctionbetween“risk

avoidance” and “risk control.”128By avoiding risk,we can’t progress. Instead,theaimshouldbetocontrolrisk—takingenough,butnottoomuch.Pascaltriedtobelesswrong.Hedidn’tknowwhatthefutureheld,sohemade

a ballpark guess and took his chances. Contrary to what appears to be thescientific rigor and mathematical precision of finance, most of what we careabout is incalculable. Risk is usually hard to define and almost alwaysimpossible to measure precisely.We need not look much further than severemarketcrashesthatastatisticsPh.D.wouldclaimareonce-in-a-lifetimeeventsbut that happeneverydecadeor two.Black swans aremore common thanwethink,andnotjustinthestockmarket.Thephilosophyoflesswrong—theheartofthe“protect”stageofourtriangle

—courses through key elements of ourmoney lives: Insurance, investing, anddebt.Insurance.This is themostobviousexampleofhowmostofus intuitivelytry to be less wrong.We don’t know if our house will catch on fire.Wesuspectitwon’t.Wedon’tactcarelesslyaroundflames,wepurchasesmokedetectors,andhaveanextinguisherhandy.Butyouneverknow.Sowebuyfireprotectiononourhomesanddon’tgiveitasecondthought.Mostoftheinsurance premiumswe pay for our homes, cars, and liveswill forever be

“lost.”Butwedon’tseethemasmoneysquandered.Forsmallsums,webuypeaceofmind.Whodoesn’t sleep a little bit better knowing that if such acatastrophe happened, they’d still be able to put their life back together?Pascal bought insurance on his soul and was, I’m sure, happy to pay thepremiums.Investing. In one of the most important investing articles ever written,“Winning the Loser’s Game,” money sage Charley Ellis argued that mostinvestorsshouldwinbynotlosing.129Heusedthegameoftennistoillustratehis point. For novice tennis players (which is nearly everyone) victoryusually stems from avoiding errant shots and keeping the ball in play.Wepatientlycapitalizeonacompetitor’smistakes;weletthegamecometous.Professionaltennisplayersdosomethingentirelydifferent.Theyhittheballwith power and pinpoint accuracy. In tennis, like investing, professionalsstrivetobemoreright,whilemostothersshouldfocusonbeinglesswrong.Great investors naturally think about being less wrong. Legends like

WarrenBuffett,CharlieMunger,HowardMarks,PaulTudorJones,GeorgeSoros,andSethKlarmanneverflipcoins.Theypatientlywaituntiltheoddsaresostackedintheirfavoritwouldbefoolishnottobet.Theymakeplentyof mistakes along the way, but focus on minimizing the damage.Summarizingthepointnicely,GeorgeSorossaid:“Myapproachworksnotbymakingvalidpredictionsbutbyallowingmetocorrectfalseones.”Trulyskilled investors value flexibility, adaptability, and the ability towithstandlossesinordertofightthenextday.Debt. The less wrong mentality reveals a fresh view on why debt orexcessive borrowing is a problem.Yes, rule number one inmost personalfinance checklists is: Don’t spend more than you make. We know that.Nonetheless, many do not heed that advice.130 That’s a problem in theobvioussensethatwe’llhavetofindsomewaytocomeupwiththemoneytopaybackourlenders.Butindebtednessalsohasarippleeffectthroughourlivesinthatitlimitsourflexibility.Muchofourneedtocalibratehappinesswithourfinancialwherewithalrequiresustoadapttochangingorunforeseencircumstances.By curtailing our ability to adapt, debtmakes that dynamicevenharderthanitalreadyis.Debtnotonlyputsusintheholefinancially,italso limitsourchoicesand inhibitsourability tobe lesswrong.Especiallywhen debt compounds, it forces us to make decisions we wouldn’t havemadeotherwise.

Insettingourmainprioritiesforgrowingandstayingwealthy,controllingriskcomesfirst.Thisisn’tthesexypartofmoney.Thatcomeslater.Thisisthehardpartbecauseitinvolvesagreatdealofthoughtabouthowweshouldconductouraffairs,howwewanttoriskwhatwehaveinordertogetahead.It’shardbecausetherewardsfordoingthisrightarealmostnevervisible.At

theprotect stage, the rewardsare largelynon-events, things thatdon’thappen.Therearenoawardsoraccolades forcontrolling risk,noshinynewcar in thedriveway for exercising prudence.Nonetheless, failure at this stage, failure toplan for life’s inevitable accidents and mistakes, ensures that we will not bewealthy, or at best consigns our fate to life’s randomness, where thingsarbitrarilyworkoutortheydon’t.

Match

AssetsinWonderlandPriority one was managing risk thoughtfully. Priority two moves us into theheartof financialplanning:Articulatingandstriving towardourgoals.Weareindividualswithourownstoriesandaspirations,butmanyofthebasicfinancialgoalsmost share—a comfortable and dignified retirement, a nice home,well-keptandeducatedchildren.Beyondthose,anythinggoes—yourowncornerbar,akillersneakercollection,livingoverseas,finishinganIronmanTriathlon.Younameit.Planningforone’sfuturegoalssoundsstraightforwardenough,buttherearea

coupleofrubs.Firstandforemost,relativelyfewofusdothis.Inarecentsurveyofaround7,000well-off investors,only37%of the respondents said that theyhad a formal financial plan.131 Nearly two-thirds of those surveyed werebasicallymakingitupastheywentalong.Manyofthesewealthypeopleworkwith a financial advisor, but relatively few advisors have their clients on arobust,adaptableplan.Sometimeswhenwesignupfor“financialplanning”or“financial advice,” what we’re really getting is narrow investment advice:pickingstocksorbondsorfundsthatare“good”investments.Butgoodforwhat?Iwanttostatethisstrongly:Ifyou’remakinginvestments

outside awell-articulated plan—meaning that some or all investments are notexplicitlymatchedtodefinedobjectives—thenyou’respeculating,notinvesting.This exchange inAlice inWonderland summarizes, unfortunately, howmanyindividualsapproachtheirfinancialplans:Alice:Wouldyoutellme,please,whichwayIoughttogofromhere?TheCheshireCat:Thatdependsagooddealonwhereyouwanttogetto.Alice:Idon’tmuchcarewhere.TheCheshireCat:Thenitdoesn’tmuchmatterwhichwayyougo.Alice:…SolongasIgetsomewhere.TheCheshireCat:Oh,you’resuretodothat,ifonlyyouwalklongenough.Withoutadestination,wemeander.Mostofusbecomequitegoodatjustifying

whereverweendup,butwouldreluctantlyadmitthat’snotnecessarilywherewewantedtobe.

GetbalancedTheheartoffinancialplanningissyncingupyourassetsandliabilities,orwhatyou own versus what you owe. There is no more important first step tocontrollingyourmoneylifethanbuildingapersonalbalancesheet.The great news is that the exercise of drawing up yourmoney scorecard is

relativelysimple.…

Theexercise involves listing inonecolumnwhatyouown (your assets) andlistingwhatyouowe(yourliabilities)intheother.Additallupandyou’vegotyournetworth.That’swhereyou’restartingfrom.Appreciatethatveryfewpeopletakethissimplestep,soputtingpentopaper

setsyouapart fromthecrowd.Byupdating iteveryyearorso,you’llhaveanaccuratecheckonyourmoneyhealth.Evenifthenumberisn’twhatyouwantittobe, aclear-eyedview isamust.All soundmanagement startswithaccuratemeasurement.

MatchGameWith a starting point in hand, we can nowmap our money goals. I call thismatching:Wewanttotargetindividualfinancialgoalsasaccuratelyaspossible.This exercise will always be imprecise, but we’ll never let the perfect be theenemyofthegood.Inthespiritofsimplification,wehavetwotypesoffinancialgoals:

1. TerminalGoals. At some point in the future, wewill need tomake alump payment for something. Think of a fixed amount for a downpaymentonahouse.Doyouknowexactlyhowmuchandexactlywhen?No.Butyoucanballpark,forexample,thatyouwanttoputdownabout$60,000ona$300,000house (a20%downpayment) ina fewyears.Aterminalgoalcanbedrawnlikethis:

2. Flow Goals. Other goals don’t involve a fixed payment, but a steadystreamofincome,oftenforanindefiniteperiodoftime.Byfarthemostimportantexampleofthisisretirement.Manypeoplethinkofretirementas a terminal goal, but that’s a mistake. They will say they want toaccumulate a $1million “nest egg” to live off after they decide to stopworking.Whattheyreallyneedisanannual incomethatallowsthemtomaintainthelifestyletowhichthey’vebecomeaccustomed.Aflowgoallookslikethis,witheachcircleayearinthefuture:

Toseetherelevanceofthedistinction,let’scontrastarguablyourtwobiggestfinancialhurdles,collegeandretirement.Withplanningforcollege,webenefitfromknowinghowoldourkidsare,whichmeanswehaveagoodideaofwhentheywillleavehome(hopefully).Iknow,forexample,thatmydaughterisverylikely to start college in 2025. Maybe she takes a gap year and maybe shedoesn’twant to go to college after all, but practically speaking, I have a verygoodsenseofwhenI’mgoingtoneedtostartwritingsomebigchecks.Allin,payingforcollegeisafixedamount,eventhoughit’snotdistributedin

onelumpsumpayment;whetherthosepaymentsarespreadacrossfour,eight,orsomeothernumberofperiodsissecondary.Themysteryhereisnotthetimingbut the total amount.We don’t knowwhere our kids will want to go, wherethey’ll get accepted, what financial aid is made available, and the costdifferential between one school and another. The latter can be massive—hundredsof thousandsofdollars.Andoften,practically, the tailwags thedog:What we’ve saved, what we can borrow, and what we can afford determineswhereourchildgoes.

Asnoted,retirementisaflowgoal,notaterminalgoal.The“nestegg”conceptmakescasualsensebutisadistraction.132Unlikewithcollege,wedon’thaveagood sense of when we will officially retire. Sure, there’s the conventionalthinkingthatwewillstopworkingatage65(or62,orwhenever),butthe“newretirement” isn’tgoing towork thatway,seeinghowimproving longevitywillpushoutboththeneedanddesiretostayengaged.Nonetheless, therewillbeapoint in the futurewhenwewant to slowdown

andtherewillalsobeapointwhenwemustslowdown—ourbodiesand/orourmindswillcompelus.It’satthatunknowndatethatwe’llstartneedingincometosustainadignified lifestyle.Twotasks—calculatingthat incomeandturningassetsintoreliableincome—areamongthehardestandmoststressfulelementsofourmoneylives.133

Terminal and flowgoals differ.But they do share the unfortunate quality ofimprecision. Institutions like pension plans have it easier thanwe do becausetheycanpreciselycalculate their future liabilities.Theyknow theywilloweafixedsetofpensionersa fixedamountata fixedpoint in the future.Theycan“immunize” those liabilities through smart planning. For regular folks like us,ourliabilitiesarehardertoestimate.Butthefactthatindividualshaveitharderthanpensionsdoesn’tmeanthatwedon’t try.The“matching”mindset iswhatallowsustoplanappropriately.With thismatchingprotocol, there’san importantgeneral rule:Thenearer in

timeagoal,thelessriskyoushouldbewillingtotake.Forinstance,thinkaboutowning stocks in a college savings account. When our kids are very young,that’s a great idea.With 10 or 15 years to go,we can financiallyweather theunavoidableupsanddownsthestockmarketdelivers.Notsomuchwhensheis17yearsold.Marketscanquicklydrop20%ormore.

If thathappens justbeforeyou’vegot towrite abigcheck,you’llnotonlybeworkingwithalotlessmoney,you’llalsobewithdrawingfromtheaccountatalousytime,lockinginlosses.Thesamelogicappliestoretirement.Noonewants

todeferretirement,letaloneleaveretirementandgobacktowork,tomakeupforanunforcederrorofowningriskyassetstomeetshort-termneeds.Hopefullythematchingprotocolsoundsreasonable,butit’simportanttorecall

thatveryfewactuallydothis.Italsostandsinoppositiontothefavoritepastimefortoomanyinvestorsandfinancialadvisors:beatingthemarket.That’sasillyandfruitlessgame.It’snottiedtoourrealneeds,it’sattachedtoourego.

TheproblemwithgoalsPlanningforgoalsislessstraightforwardthanitfirstappears.Relativelyfewofussetcleargoalsatall, letaloneaplantoachievethem.Themoneyscorecardand associated matching exercise is an attempt to remedy that. But there’sanotherproblem.Evenwhenweputforthbesteffortstoplan,thegameisabitdifferent than we think. Life is never cut and dried. Uncertainty abounds. Inmany instances, we don’t knowwhatwe’ll want in the future. In fact, recentresearchgoesevenfurtherandsuggeststhatwedon’tknowwhowe’llbeinthefuture.Popeyesaid,“IyamwhatIyamanddatsallthatIyam.”Butwe’renottwo-dimensionalcartooncharacters.Ourfutureidentitiesareamovingtarget.In a fascinating study, a group of prominent researchers measured the

personalities,values,andpreferencesof19,000peopleranginginagefrom18to68.Theyfoundawidegapbetweentheexpectedandreportedchangesinthosequalities.We look backward over our lives differently thanwe look forward.Theresearchersdiscoveredthatpeopleareeasilywillingtoaccept that they’vechangedover theyears into theperson theyarenow—Iyamwhat Iyam—butthen conclude that wherever they are is where they’re going to stay: “Peoplemaybelievethatwhotheyaretodayisprettymuchwhotheywillbetomorrow,despitethefactthatitisn’twhotheywereyesterday.”Theculprithereistime,that“powerfulforcethattransformspeople’spreferences,reshapestheirvalues,andalterstheirpersonalities.”134Time,wewilllearn,loomslargeinthequestforwealth.This type of research throws a monkey wrench into what sounds like

reasonablegoals-basedplanning.Thereisanatural,butoftenunnoticed,tensionbetween the way we financially plan for our futures and what our brains arewiredtoaccommodate.AsfinancialplanningguruMichaelKitceswrote,“Thefundamentalchallengeofgoals-based investing…is thatwedon’t reallyhaveanyrealcluewhatourgoalsactuallyare.”That’s a bold statement but strikesme as true. It suggests that ourmatching

protocolwillneedtowalkthelinebetweenbeingtoogeneralandtoospecific.Wewant to plan for something beyond just “more.”But overly specific long-termplanscancauseproblems,too.HowsurearewethatinadecadeortwowewillwantthatvacationhomeinFlorida,thatboat,orthathigh-riseapartmentinthecity?AsI’vepointedout,we’reprettypooratpredictingwhatwewantinthefuture.Weassume thatwhatweprefer now iswhatwe’ll prefer far down the

road, that our values will go unchanged—and that life’s unpredictable eventswon’tupendourassumptions.

Reach

CongratulationsYou’ve protected yourself as best as possible from potential catastrophe.Youfeel safe.You’re “lesswrong.”You remain aspirational, but you’rewilling togiveupa little toavoidabig loss.Youmakebestefforts tomatchyourassetswith your obligations. You’ve aligned your investments accordingly. You’veexecutedallofthiswithinyourbroaderefforttoestablishapurpose-drivenlife,recognizingthatthingsnevergofullyaccordingtoplanandthatadaptationisacriticalskillinlife’sjourney.What’s next? In an important sense,nothing.You’vewon themoney game!

Wealth,werecall,isfundedcontentment.Atthispoint,youshouldfeelasenseof pride and gratitude that you’ve achieved what few do. Enjoy it. You’veearnedit.Differentpeopleachievethisstagewithverydifferent-sizebankaccounts.The

issue iscalibration:Haveyousyncedyour scorecardwith the lifeyouwant tolead? If so, then you are wealthy. Don’t take lightly the enormity of thisaccomplishment.Wearenowabletoreachfor“more,”aconceptI’velargelyassailed,butone

thatcanbeharnessed ifpursued in the rightwayat the right time.Wealwaysremainaspirational,embracingthejoysoflivingandstillstrivingforbetter.In practical terms, folks go in different directions at this stage. Fulfillment

alongthelinesofthe“4C’s”detailedinChapter4cancomeinmanydifferentforms.Noneofthosetouchstonesrequireyoutoaccumulateacertainamountofmoney—the “number” that many casually employ as shorthand for theirfinancial objective.All of them require you to be calibrated andoften involvepushing toward goals outside themselves. These range from creatingintergenerational wealth (e.g., paying for grandchildren’s college, trusts forvarious familymembers) to underwriting charities that represent and promoteone’svalues.Many,inadditiontothesegoals,justwanttohavealotoffun—exploring hobbies, traveling, you name it.Ultimately, these are very personal,idiosyncraticdecisions.

SayingthanksHavingachieved the “reach” stage shouldbe a sourceofpride and joy.Manydreamof it,butonlysomeget there.Unfortunately,manyof thosedreamsareoff-basebecausewealth is typically framed in termsofhowmuchmoneyonehas.Theunhealthymindsetis,“ifonlyIaccumulateX,I’llbehappy.”Butrichisn’twealthy.It’sonlythosewhohavecalibratedtheirownsenseofhappinesswithabalancesheettounderwriteitwhocanconsiderthemselvestrulywealthy.Acriticalingredientintherecipeofgrowingandstayingwealthyisexpressing

gratitude.Someofthemostpowerfulfindingsinthefieldofpositivepsychologyare thatgiving thanks andbeinggenerous aredeep sourcesofhappiness, bothexperienced and reflective. Generosity and gratitude are anchor practices inspendingwisely,asdiscussedinthepreviouschapter.PsychologistRobertEmmonssuggeststwostepstobenefitfromgratitude.The

first is to acknowledge thegood thingsyouhave in life.This isharder than itsounds because it’s difficult to resist comparisons to others. There is alwayssomeone who has more, or what appears to be better. Social media hasaggravatedanalreadyunhealthyreflexbecauseforthefirst timeinhistory,wehave thedailyopportunity toobserve the“happy”experiencesofothers—coolvacations,funnightsout,achild’ssportingvictory.FacebookandInstagram,forexample, can be uniquely stressful experiences that inhibit the path towardwealth. Though easier said than done, it’s healthier to think about one’s ownprogressratherthanrankingourselvesbyanother’smeasuringstick.Second,youshouldrecognizethatinadditiontoourowndetermination,many

ofthegoodoutcomesinourlivesareduetothehelpofothersaswellassomeelement of luck.135 Emmons suggests that gratitude “implies humility,” therecognitionthatwecouldn’thavedoneitallbyourselves.Ratherthanasignofweakness,it’savalidationofapositiveconnectiontoothers.136Thismeansthatonemust move from the inner feeling of gratitude to its outward expression.Sayingthanks, includingexpressionsofkindness, isoneof themostpositivelyselfish thingsone candoon thepath toward contentment.137 Fewacts of suchlastingimpactareasfreeandeasy.Gratitudecanleadtoaprofoundchangeinhowoneexperiencestheworld.

123.en.wikipedia.org/wiki/Pascal’s_Wager124.RoyF.Baumeisteretal.,“BadisStrongerThanGood”(2001),ReviewofGeneralPsychology5:323–70.125. Carl Richards, “Overcoming an Aversion to Loss,” New York Times, 9December2013.126.ThisdiscussionofriskandrewardwasinspiredbyHowardMarks.SeeTheMostImportantThingIlluminated(ColumbiaBusinessSchoolPress,2013).127. Bill Carmody, “Why 96 Percent of Businesses Fail Within 10 Years,”Inc.com,12August2015.128.Marks,TheMost Important Thing. See also Peter Bernstein,Against theGods:TheRemarkableStoryofRisk,(Wiley,1996).129. Charley Ellis, “The Loser’s Game” (1975), Financial Analyst Journal31(4):19–26.130. Maria Lamagna, “Americans Are Now In More Debt Than They WereBeforetheCrisis,”marketwatch.com,23December2016.131.Natixis,2016GlobalSurveyofIndividualInvestors,bit.ly/2IdVEjZ.132.DanielGoldstein,HalHershfield, and ShlomoBenartzi, “The Illusion ofWealth and Its Reversal” (2015), Advances in Consumer Research 43. The“illusionofwealth” ismorepronouncedwhenpeople thinkof their retirementnesteggasa lumpsumamount (e.g.,$1million) insteadofan incomestream($3300/month).133. Transforming assets into income is an area where most people needprofessionalassistance.134. Jordi Quoidbach, Daniel T. Gilbert, Timothy D. Wilson, “The End ofHistoryofIllusion”(2013),Science339,pp.96–8.135. Robert A. Emmons, Thanks! How Practicing Gratitude Can Make YouHappier,2007;andEmmonsandM.McCullough,“CountingBlessingsVersusBurdens:AnExperimentalInvestigationofGratitudeandSubjectiveWell-BeinginDailyLife”(2003),JournalofPersonalityandSocialPsychology84:377–89.136.Emmons,Thanks!pp.4–5.137.KristinLayousetal.,“KindnessCounts:PromptingProsocialBehavior inPreadolescents Boots Peer Acceptance and Well-Being” (2012), PLoS ONE7(12); S. Katherine Nelson et al., “Do Unto Others or Treat Yourself? TheEffects of Prosocial andSelf-FocusedBehavior onPsychological Flourishing”(2016),Emotion16(6):850–61.

U

7.MakingDecisions

“Thedisciplinewhichismostimportantininvestingisnotaccountingoreconomics,butpsychology.”

–HowardMarks

“Invert,alwaysinvert.”–CharlieMunger

NTILNOW, I’VE addressedmoney life inmostly broad strokes, combiningthe linked domains of earning, spending, saving, and investing. With

earningpower,webuildalifeforourselvesandourfamilies.Muchofthedailygrindisconsumedbynotonlymakingalivingbutstrivingtodoevenbetter—tomakemore, to domore, to grow. This is profoundlymeaningful, seeing howcontrolandcompetencearetwoofthefourtouchstonesofalifewell-lived.Brassinpocket,wespendondailyneedsandwants.Spendingmorethanwe

earn is a no-no, though many do it throughout their lives. Others are moreresponsible,keepingdrypowderthatcanbeuseddowntheroadforfuturegoalsordealingwithunexpectedadversity.Evenacombinationofwisespendingandhealthy savings, however, isn’t always enough. That’s especially true for thebigger things in life and their attachment to eudaimonia, such as college(competence), a nice home (control), or taking care of aging parents(connection).Theseaspirationsdon’t alwayscomecheap,which iswhere investingcomes

in.Weputoursavingsatrisktoachieveresultsbetterthanwhat’sachievableina“safe”bankaccount.Investingistherealmoftheuncertain,aseriesofbetsonanunknowablefuture.Investingcanquicklybecomewildlycomplicatedaswellasemotionallyintimidating,whichiswhyit’scriticaltomaintainfidelitytotheprincipleofadaptivesimplicity.In this chapter, I sortout themainpriority forour investing lives,which for

normal people (not finance wonks) is shopping in the public stock and bondmarket.Threefactorsdrivegoodinvestmentoutcomesovertime:

1. Yourownbehavior.2. Youroverallportfolio.3. Theindividualinvestmentsyouchoosetopopulatethatportfolio.

Onceagain,threeisthemagicnumber,representedbyasecondtriangle.

Thistriangleflipsconventionalpracticeonitsheadbysuggestingthatwhat’smostimportantisalsotheleastvisible.Intheworldofmoney,wetendtofocuson what’s right in front of us. In psychologists’ parlance, it is the bias of“availability.”FilteredthroughconventionalmedialiketheWallStreetJournal,CNBC,Barron’s, or theMoney section ofUSA Today, what we most easilyobserve—and thus thinkabout—are individual investments,ofwhich therearehundreds of thousands of stocks, bonds, and funds to choose. Those withdazzling recent performance are difficult to ignore aswe can’t help but thinktheyhavethechancetomakeusrich.Yet this isaclassiccaseofwhat’smostobservable isnotnecessarilywhat’s

mostimportant.Thespecificpartsarejustthat—afractionofthewhole.It’showwebuildandmaintainouroverallportfoliothat’smoreimportant.Andthat, inturn,isdwarfedbytheconsequencesofourowndecisions.Let’snowlookatthethreepartsofthetriangleinturn.

BehaviorWinningtherightgameTheinvestor’sprimaryproblemisnotfiguringoutthemarket.Itisfiguringouthimself. Success stems not, as markets observer Jason Zweig wrote, from“beatingothersattheirgame.It’saboutcontrollingyourselfatyourowngame.”Psychology,notfinance,ismostimportantinachievingourlong-termfinancialobjectives.138Acceptance of this perspective has been a long time coming. The world of

finance usually appears complicated and technical. And for good reason:Finance is a lucrative industry inwhich complexity is an important and often

unassailable competitivemoat.Make things too easy and you potentially loseyourcustomers.The industryhasbegun to turn thecorner. It’snowbeenwellevidenced that

our brains are hardwired to make a litany of cognitive and emotional errors.Rectifying them sits at the core of a successful money life. It’s no longeracceptable to say that something flatly described as “emotions” interferewithgood decisions. Instead, recent achievements demonstrate the rich breadth ofinsights we now have for individuals to define and reach their goals. Forexample, Daniel Kahneman’s 2011 bestseller, Thinking, Fast and Slow,deliveredbehavioralfinanceintothemainstream.MichaelLewis’TheUndoingProject put a human face on the development of this iconoclastic science.RichardThaler’s2017NobelPrizeinEconomicsforhispioneeringresearchinbehavioraleconomicswasanothervalidationofthisendeavor.Whilesomewillcasuallyclaimthatthemanybiasesthatdefineusaresources

of “irrationality,” I disagree. We are not irrational, let alone stupid. We arehuman.Wearenormal.Acursoryglanceatthebehavioralfinanceliteraturerevealsscoresofbuilt-in

quirks.System1thinking,orthe“fast”brain,isresponsibleformanyofthem.Whilemasterfully keeping us safe andwell-functioning, it ironically producessystematicerrorsofperception,judgment,anddecision.I’ve touched on a number of different behavioral issues already. Here is a

quick summary of those, plus some others. Recognize that the behavioralnarrativecoursesthroughthisentirebook,andwillcontinueuntiltheveryend,whereweexploretherelationshipbetweenourcurrentandfutureself.

These biases andmanyothers lead to bad decisions or non-decisions,whichcancostsignificantdollarsandcentsininvesting.Theobjectivehere,however,isnottoacquireaperfectunderstandingofallthesequirks,forthatinitselfdoesnot translate into great outcomes.When Daniel Kahneman, the man who co-invented thisentire fieldof study,wasaskedwhatcouldbedone toovercomebehavioralbiases,heremarked:“Verylittle.Ihave40yearsofexperiencewiththis, and I still commit these errors. Knowing the errors is not the recipe toavoidingthem.”139Thus,successisnotaboutdeprogrammingyourself.It’saboutfindingwaysto

mitigate the consequencesof inescapable foibles and inevitablemistakes.Thatstarts with recognizing how unique our experience with money and investingreally is.Wemakemanyof thosedecisionsunder time’s longshadow.Unlikemanyotherdecisionsinlife,thetemporalgapbetweenwhenwemakeamoneydecisionandwhenwearerewardedorpunishedforitcanfeellikeaneternity.Muchofwhathumansaregoodatdoesnotcenteronweighingconsequencesofapossibilitymanyyearsinthefuture.Imagine theexperienceof enjoyingyour favorite cheeseburger.Thepleasure

starts prior to even sitting down at the restaurant. As you develop a craving,anticipation kicks in and dopamine is released in your brain. Anticipation is

central to the enjoyment itself.You’ve eaten this cheeseburger before, so youhaveagoodsenseofwhat itwill taste, smell, look, feel, andevensound like.There is an expected but brief delay betweenwhen you order the burger andwhenit’sserved.Andwhenyoubiteintoit…bingo.Allofyourfivesensesareamped.Thereisnotemporalgapbetweenthebiteandyourenjoyment.Pleasureisinstantaneous.Investing is also a form of consumption, but it’s about the opposite of that

wonderful cheeseburger experience in every regard.There is usuallyno joyfulanticipationofpurchasingasecurity.Perhaps ifyouhaveahot tip foraquickwinner,yourpulsewillquicken.Yourexpectationsforwhatthatinvestmentwillprovideareatbestimperfect.Aswe’llseeinthesquare,havingaclearandup-to-date set of expectations for our investments is elusive, explaining why somanypeoplehavepoorinvestmentexperiences.Atthetimeof“consumption”—themomentyouofficiallyownthestockorbondorfund—noneofyoursensesis engaged. Because nothing happens. Indeed,with investment products,whatwe experience is an interminably long disconnect between purchase andenjoyment,betweenconsumptionandutility.Inthatvastswathoftime,humanshavecountlessopportunitiestoscrewthings

up.

ThebehaviorgapIn Chapter 1, I raised what I consider the most powerful data point indemonstrating how in investing, emotional intelligence trumps financialintelligence: the fact that we systematically buy high and sell low—the exactoppositeofwhatcommonsense,letalonefinancetheory,wouldtellustodo.Overwhelming evidence shows that we underperform our own investments.

Over the 20 years through the end of 2015, the U.S. stock market nearlyquintupled.Anaveragebuy-and-holdinvestmentgained483%overthatstretch.But the average investor in U.S. stock mutual funds gained just 251%. Thisdifferenceisreferredtoasthe“behaviorgap.”Why did investors leave nearly half their gains on the table? In a word:

Evolution.Our survival instincts compel us to run fromperceived danger andpounceonperceivedopportunity.That’s true inallwalksof life, including thedomainofmoney.Whenmarketstrendupwards,investorsentimenttendstobemore positive. Bull markets make for better moods. Because markets tend totrendupwardsover long stretches,wehitnewhighsmore frequently thanonemight casually suspect. For those focused on daily market action, those newhighs release dopamine in the brain (new highs physically feel good), whichmakesusmorelikelytoinvestmore.Butwhen themarket turns south,watch out.Our brain chemistry sours and

we’reunlikelytoinvestmore.Whobuys“onthedip?”Almostnoone.Infact,we’repronetoheadfortheexitswhentheprospectoflosingevenmoremoneyseemslikeabigpossibility.Thisisourbuilt-insurvivalinstinctatwork.Thereissubstantialevidencetosupportthiscycleofgreedandfear.140Lookat

the two numbers in the following graphic. The number on the left is theannualizedreturnofbigcompanyU.S.stocksoverthepast20years.Thatfigureis8.2%peryear.

Thenumberon the right ismorecomplicatedbecause it considers investors’real-worldbuy-and-selldecisions.Sometimeswechoosetoputsomemoneyintothemarket;atothertimeswetakeitout.Dataareavailabletopreciselymeasureeverydollarinmotion.Thus,theaverageinvestor’sinvestmentcompoundedatjust4.7%overthatsame20-yearstretch.141Percentages and other financial statistics are cold and abstract. They rarely

resonatewithnormalpeople.Thus,it’shardtogetamentalfixontherelevanceof thedifferencebetween“8.2%”and“4.7%.”The impactofbuyinghighandsellinglowisunderstoodmoreviscerallywhenwelookatthereal-worlddollarsatstake:

Thegapbetweenthetwonumbersislarge.Basedona$100,000portfolio,thedifference between the “set it and forget it” strategy versus the “let people bepeople” strategy is $233,093. (You can adjust the starting amount howeveryou’dlike,butwhatwon’tchangeisthenearly2xdifference).Ifyoustart thisexerciseatage45andstaywithituntilage65,betterbehavior“buys”additionalyearsofacomfortableretirement.

ChoosingnottochooseAnimportantdistinctionwhenthinkingaboutmakinggooddecisionsiswhetherweactuallyhaveanychoicetobeginwith—orwhetherwewantany.Attimesinlife,wehaveagreatdealofdiscretion.Wechoosetoeatoutinsteadofstayingin;wethenchooseoneofmanyrestaurants;andwethenchoosewhateverwe’dlikefromanextensivemenu.Inanoppositescenario,weareobligatedtoattendsomeone’s dinner party and eat whatever we’re served alongside people wedidn’tchoosetobewith.This type of choice regime—discretion vs. not—is something we encounter

daily, in all life’s domains—consumption, health, work, transportation,education, money. Its structure and its consequences are usually trivial. Ourspouse’sfriendmaybeadreadfulcook,butwe’llsurviveanoverdonesteak.In some areas it’s not trivial. For example, some of us participate in our

employer’s retirement plan. A small portion of our regular paycheck isautomatically deposited in the plan. This is effectively putting our investmentdecisionsonautopilot.Thosewhoopt into retirementplansusuallydon’t thenlater opt out. In contrast, most other types of investing are discretionary, inwhichyoucanbuyandsellasyouseefit.Onestrikingexampleoftheconsequencesofthesetwoapproacheswillbring

thepointhome.Inthiscase,differentinvestorsintheexactsamefundovertheexactsametimeframehaddramaticallydifferentoutcomes:InvestmentAover10years→GoodOutcomeInvestmentAover10years→BadOutcomeHowcouldthisbe?Thedifferenceisdeterminedbythosewhohavediscretion

overtheirtripversusthoseonautopilot.When we compare discretionary versus autopilot versions of the same

investment, we often observe wildly different investor outcomes. Take as anexample theworld’s largestmutual fund, theVanguard500 IndexFund.Withabout $620 billion in assets, the fund comes in two different formats.142 Theportfolio is identical in each, but one version is held in autopilot retirementaccounts, the other in discretionary accounts. The only practical differencebetweenthetwofundsisanimmaterialdifferenceincost(asmallfractionofapennyonthedollar).Aswouldbeexpected,theinvestmentperformanceofthetwofundsisnearly

identical.Overa10-yearspan,theautopilotversion(VINIX)returned6.9%per

year while the discretionary version (VFINX) returned 6.8%—a tiny gapexplainedbythatsmallfeedifferential.143When we dig into the numbers, the picture grows more interesting. The

behavior gap for the discretionary fund iswide.Compared to the actual 6.8%return,theaverageinvestorinthefundearnedonly4.3%.Becausethistimespanincludes 2008, much of the behavior gap is explained by impulsive sellingduringthecrisisandthenfailuretoresumeinvestingaftermarketscalmeddown.

Autopilot investors faredmuchbetter.WhileVINIXreturned6.9%peryear,the average autopilot investormade 7.7% per year—a negative behavior gap!Why? Because investors in VINIX are dollar cost averaging into the marketduringgoodtimesandbad.Theywerelesslikelytosellin2008.Theybuymoreshareswhen themarket is lowerand fewerwhen it ishigher;a slight twistonbuyinglowandsellinghigh.Asaresult,investorsinVINIXoutperformedtheirownfund.All in, autopilot investors had a much better experience than discretionary

investors.Therealdollarconsequenceofthisgoodversusbaddecision-makingislarge.Here,theaverage$100,000investorinVFINXendedupwith$160,630overthefollowingdecade,comparedto$260,087inVINIX—a62%difference.This isn’t pie-in-the-sky finance.These are significant dollars that canmake adifferenceinourlives.In this case, one group of investors wasn’t “smarter” than the other. They

weren’tmorelikelytohaveanMBAoradegreeinfinance.Instead,onegrouphadalotofflexibility—andabusedit.Theotherforfeitedthatchoicebygoingonautopilotandcameoutwayahead.Withinvesting,anitchytriggerfingerinvitestrouble.Whenmarketsgetshaky,

we can’t but help feel the urge to bolt. And once we step aside, we greatly

underestimate the fortitude it takes to get back in. This is only natural—ourbrainsarewiredthisway.However, impulse control is, to some extent, manageable. Through proper

parenting, coaching, and socializing, individuals can buttress their willpower.Betteroutcomesarepossible, even thoughmuchof the availabledatapoint toworseones.Aswe just saw, one solution is to eliminate discretion altogether.Whenwesignup forautomaticsavingsplans,we tend toachievemuchbetteroutcomes.OneofthemostsuccessfulsavingsprogramsinU.S.historyhasdonejustthat.

Byasmallbutimportantdesigntweak,thebehavioristsbehindthe“SaveMoreTomorrow” program have driven billions of dollars in extra savings byindividual investors.144 That tweak was introducing “negative consent” tocorporate retirement plans: Rather than asking people to opt in to a regularsavingsplan,theyautomaticallyenrolledthemandthenaskedpeopletooptoutiftheysochose.Thechoicesetandconstraintswereidentical,butoneparadigmhasworkedmuchbetterthantheother.Oftentimes we don’t have the luxury of such structures, nor self-control. In

these cases, it’s important to partnerwith good counselors and associatewithgoodrolemodels.Wetakedirectionwellfromthosewerespect;andwemimicthebehaviorofthosewelike.Individualswhoworkwithgoodfinancialadvisorstendtohavebetteroutcomes,notbecausethoseadvisorsaremoremarketsavvy,but because they are skilled at providing a checkonbad investment behavior,suchassellingduringmarketchoppiness.Likewise,ifwerunwithafastmoneycrowd,we’remore likely to try tokeepup,especially in termsofconspicuousconsumption:MyneighborjustgotthatnewAudi,sowhyshouldn’tIupgrade?Associating with those who have healthier money habits produces healthieroutcomes. The classic money book, The Millionaire Next Door, told tales offrugalmillionaireswholivedincommunitieswheretherewaslessurgetokeepupwiththeJoneses.145Even more deeply, we strive to transform decisions into habits: Rendering

soundmoneydecisionsintoroutinesthatwenolongerthinkabout.Wejustdothem (such as regular savings) or don’t do them (such as living beyond ourmeans).Findingbetterhabitsisanimportantexpressionofadaptivesimplicity,for it means that we can eliminate the psychic strain of self-control, frequentdecisions,andtheadditionalconsumptionof(oftenuseless)information.Whenthenoiseinourmindscollideswithtime’squietexpanse,westruggle.

We hold the keys to our own long-term success, even though we sometimes

forget.Regular, consistent, disciplined investing is awesome—especiallywhenwe’re not thinking about it. A much better experience with money is withinanyone’sreach.

PortfoliosUnderneath the expansive sky of behavior, on the broad terrain of traditionalfinance, there are three paths toward making skillful investment decisions:Choosingtherightmarkets,choosingtherightcomponentswithinthosemarkets,andchoosingtherighttimestoenterandexitthosemarkets.Inwonkierterms,theseareknownasassetallocation,securityselection,andmarkettiming.Letmequicklydismissthethirdbystating,unequivocally,thatmarkettiming

is impossible. Period. Guessing correctly on occasion about markets movinghigherorlowerisnotademonstrationofmarkettimingskill.Attheverymost,therearesomeprofessionaltraders,orspeculators,whocanmakegoodtacticalbuy and sell decisions. That’s a different game than what any individualinvestorsorfinancialadvisorsare,orshouldbe,playing.Beyondthatqualifier,markettimingisafool’serrand.Thatleavesthetwoothersourcesofsmartinvesting:Properlyallocatingassets

and selecting individual securities. Asset allocation is the more important,mainlyduetoonefactor:Dispersion.Thisstatisticalconceptlooksathowmuchelbow room one has whenmaking any sort of decision. It is defined as howmuch difference exists among the particular choices on a menu.When manydisparate choices are available, there is the opportunity to exercise skill inmakingthe“right”choice.Withfewerchoices,thatopportunityislimited.Afoodcourtatanairportoralocalmallprovidesanoff-beatbutaptlessonin

asset allocation and security selection. I travel throughO’HareAirport all thetimeandthesearemychoicesintheTerminal3foodcourt:McDonald’s,BurritoBeach, Dunkin’ Donuts, Reggio’s Pizza, O’Brien’s, ManchuWok, B-SmoothSmoothies,PrairieTap, andTortasFrontera.Thesenine spotsdifferwidely intheir focus:Burgers,Chinese,Mexican, pizza, deli sandwiches, salads, and soforth.

What’sgoingtodriveasatisfyingdecision?Firstandforemost,itwillbebasedonwhichoftheninerestaurantsIchoose.Ihavemanydistinctchoicesandmypreferencesarewhattheyare—IpreferMexicantoburgers,forexample.Thus,IvoteforTortasFronteraoverMcDonald’s.Eitherofthosetworestaurantshasadozenormore individualchoices,butgenerallywhatever Ichoose fromeithermenuwillberepresentativeofthatcuisine.WhetheritistheBigMacorQuarterPounderatone,orachoriquesotortaorasmokedporkmoletteattheother,thekey driver of a good meal is the restaurant and the secondary driver is thespecific menu selection. The difference—or dispersion—in utility betweenMcDonald’sandTortasFronteraiswiderthanthedifferenceamongstthemenuitems at either of the respective places. Getting the restaurant right is moreimportantthanpickingtherightdish.Choosinginvestmentsworkssimilarly.Thebigchoiceathandisoneof“asset

classes”—broadcategoriesofinvestmentsthattendtoworkbytheirowndistinctlogic. The primary asset classes are stocks, fixed income, real estate,commodities,currencies,andcash.Asapracticalmatter,thethree“biggies”arestocks,bonds,andcash.Withineachofthosecategoriesaremanybroadandfinedistinctions.Withstocks,forexample,wecandistinguishbetweendomesticandoverseascompanies,bigcompaniesandsmallones,anddifferentsectorssuchastechnology,healthcare,orindustrials.Samethingwithfixedincome,wheretheglobalmarketplaceismuchlargerandmorenuancedthantheequitiesmarkets:government bonds, investment grade corporate, high yield, asset backedsecurities,mortgages,andonandon.Thepurposeoftheforthcomingsectiononthesquareistohelpyounavigateboththelinguisticandanalyticconfusionofallthesechoices,sodon’tfeeloverwhelmedbythis.We’regoingtosimplifyitallshortly.Portfolioneedsarelargelydeterminedbylifecircumstances.Forgoalsfurther

out in time—asmeasured in decades—we typicallywant to own stocks.Withnearer-term goals—within a few years and certainly for generating currentincome—choosinggrowsmore complicated.All else equal,more conservativeinvestmentsmakesensefornearer-termgoals.Seminal researchhasconclusively shown thatbuildingyourportfolioaround

therightassetclassesismoreimportantthantheindividualpieces.A1986studyled by Gary Brinson analyzed why some institutional investors put up betterresults thanothers.146Among the threepotentialdriversofperformance—assetallocation, security selection, andmarket timing—theyconcluded the firstwasbyfarthemostinfluential.Differencesinassetallocationexplainedabout94%

of the differences in results. Security selection and market timing were notmeaningfulcontributors.It’saremarkablefinding,onethathasbeensubjecttointensedebate,butstillgenerallyholds.A follow-on study in2000byRoger IbbotsonandPaulKaplancorroborated

that “about 90%” of the performance differences among investors could beexplainedbyassetallocation(orintheirlightprose,“thevariabilityofthefund’spolicybenchmark”).147Onceyou’vesettledonmakingU.S.bigcompanystocksanimportantportfolioallocation,whichspecificlarge-capU.S.equityfundyouown is of secondary importance. It’s not unimportant, but it isn’t the primarydriver of results. If you chooseMexican over burgers because you know youprefer it, regardlessofwhetheryouorder thechoriqueso tortaor smokedporkmolette, you’re going to have a better experience at Tortas Frontera thanMcDonald’s.Puttingaproperassetallocationinplaceismissioncritical,butdon’tfetishize

precision.Itisthejoboffinancialexperts,institutionalinvestors,andinvestmentconsultants to come up with pinpoint portfolio recommendations. An expertmight see an actionabledifference in aportfoliowith, say, a69%versus71%allocation to stocks. But as a practical matter, in finance we often makedistinctions without a difference. For most portfolios, that shift wouldn’t beworthitintermsoftaxes,transactioncosts,time,ormentalenergy.Afantasticstoryaboutthefatherofmodernportfoliotheory,HarryMarkowitz,

brings this to life. Markowitz considered the optimal mix of assets for hispersonalportfoliobutfounditall toocomplicatedtowraphisprodigiousbrainaround.“Ishouldhavecomputedthehistoricalco-variancesoftheassetclassesanddrawnanefficientfrontier,”Markowitzrecalls.Instead,hewentthesimplebehavioral route:“Ivisualizedmygrief if thestockmarketwentwayupandIwasn’t in it—or if itwentwaydownandIwascompletely in it.SoIsplitmycontributions 50-50 between stocks and bonds.”Markowitz couldn’t apply hislandmarktheorytohisownmoney.“Goodenough”portfolioplanningwasokayforthisNobellaureate.It’sgoodenoughforus,too.

Parts

Whodoesn’tremembertheearlysceneinWillyWonkawhenthevisitorsopenedthetinydoortothehugeroomwiththechocolateriver,candytrees,andlollipopflowers?It’sanexhilaratingmoment.Ittriggersinusasenseofwondermentandofindulgence.Tothisday,andIsuspectforever,moneymagazinesandfinancialTVshowswillalsofeatureatechnicolorarrayofcandyforadults,thekindthatmightmakeyouveryrich.Thechocolateriverforaspirationalgrown-upsisthe“market”—anendlessarrayofproductsthatmakeusfeelhopeful,oftengreedy.Eachofus,atsomepoint,hasbeenAugustusGloop,theinvestor.From17th century tulip bulbs to 21st centuryBitcoin, the eye is dazzledby

what’sshiniest.Inthemoneybusiness,it’shardnottoimmediatelyzeroinonallthe componentry: Stocks, bonds, currencies, commodities, derivatives, mutualfunds,hedge funds, exchange-traded funds, real estate, andotheropportunitiesalways on offer in a frenetic 24-7 global market. Hardly a matter purely ofintellect, this is the stuffofquickeningheart rates, expandingpupils,warmingskin,anddopaminefiringinthebrain.Thecomponentswepurchasetobuildourportfoliosareimportant,butonlyin

the broader context of adaptive simplicity,where the circle and triangles havemarked the way thus far. By analogy, the exact choice of brick or wood isimportant when building a home, but only after one chooses town,neighborhood, and floor plan. Within the proper context, successful securityselection can provide a big leg up for creating wealth. An early owner ofMicrosoft has likely led a life of plenty. A former owner of Enronmight bepenniless.Thechallenge,however,isthattryingtopickwinners—especiallythekind that make a life changing difference—tweaks the exact psychologicalbiaseswhichincreasethechanceofmakingbaddecisions.Forourpurposes, theprimarygoalwith choosing the right stocks, bonds, or

funds is tobe lesswrong.Wewant toavoid individual investments thatwreakhavoconourportfolios.Avoiding losers is less fun thangamblingonwinners.Sobe it. In fact,most

peoplewhogetintotroublewiththeirportfoliosareoneswhofindtheinvesting“game” exciting. Like a trip to the casino, trading stocks and bonds can beexhilarating,butfewwalkawayfromLasVegasaswinners.Pickingsecuritiesisnotaneasygame—foranyone.148Everyinvestorthinking

about winning at trading securities must ask who’s on the other side of theexchange.When you’re buying, someone’s selling. And when you’re selling,someoneelseisbuying.Whatdotheyknowthatyoudon’t?Infact,doyouevenknowwho “they” are? It could be a hedge fundmanager, a supercomputer, a

financialadvisor,oryourgoofyneighborEd.Youjustdon’tknow.149Acommonphraseinpokeristhatifyou’vebeeninthegamefor30minutesandyoudon’tknowwhothesuckeris,you’rethesucker.Thisappliestoinvestingaswell.Thereisanarmy-sizedcohortofhighlyeducatedmarketprofessionalsseeking

“edge.”Becauseevenaslightedgecanproduceenormousriches,manypeoplegivethemarketsgameatry.Decades’worthofdatavalidatethatdemonstratingpersistentskillisveryhard.AccordingtoStandardandPoor’s,morethanfour-fifthsofprofessionalstockpickershavenotbeenabletobeattheirmarket(bigcaps,smallcaps,international,etc.)over5-yearor10-yearperiods.150Meanwhile, thosewho try to pick the best funds—selecting the expertswho

believetheycandemonstrateapersistentedge—don’thaveiteasier.Thereisnocompellingevidenceshowingthatonecanconsistentlypickoutperformers,asIdemonstrated in The Investor’s Paradox. Both individuals and institutions—neighborEdandprofessionalpensionfundmanagers—tendtobuymostlybasedonstrongrecentperformanceandsellbasedonweakrecentperformance.Withlittleexception,thesongalwaysremainsthesame.Thesilverliningisthatthe“games”thatmattermore—behaviorandportfolio

building—are easier in the sense that they are not zero-sum competitions.Instead, we need to choose what’s appropriate and what we can stick withthroughthickandthin.

~

Oneofmyinvestmentheroes,CharlieMunger,onceremarked:“Invert.Alwaysinvert.” By this he meant take the time to think differently about commonproblems.Conventionalthinkingleadstoconventionaloutcomes.Inmoneylife,theconventionaloutcomeisnotveryattractive.Ourtrianglespresentthreemaininversions,threewaystothinkdifferently.I’d

encourageyoutakeclosenoteofeach:

First,weprioritizebeing“lesswrong”overbeing“moreright.”Managingriskisapriorityoverenhancingreturns.Thisrisk-firstmindsetfliesinthefaceofmostelementsofthemodernmoneyculture.Italsohappenstobethehallmarkofhistory’sgreatestinvestors.Itishowweprotectourselvesandstayinthegame.Second, we immunize our liabilities before we maximize our assets.Muchoffinancialadviceremainsfocusedonchoosinggreatinvestmentsor even “beating the market.” Instead, our priority is taking care of

obligations—nomatterhowhardtheyaretodefine,especiallyfar inthefuture.Finally, successful investing starts by looking in the mirror. It isundermined by looking out the window or by staring at financialtelevision. The vagaries of psychology trump the precisions of financeovertime.

We now turn to the square, where we’ll continue to think differently aboutgrowingandstayingwealthy.

138.Likewise, the fatherofmodern investing,BenjaminGraham, remarked inhisbellwetherTheIntelligentInvestor,“Theinvestor’schiefproblem–andevenhis worst enemy – is likely to be himself.” The Zweig quote can found injasonzweig.com/from-the-archives-daniel-kahneman.139.Cited inJasonVoss,“HowMediatorsCanOvercomeBehavioralFinanceBias,”EnterprisingInvestor(CFAInstitute),cfa.is/2opEZC1.140. Quantitative Analysis of Investor Behavior, 2016, DALBAR, Inc.,www.dalbar.com. Average equity investor performance results are calculatedusing data supplied by the InvestmentCompany Institute. Investor returns arerepresented by the change in total mutual fund assets after excluding sales,redemptions, and exchanges. Thismethod of calculation captures realized andunrealized capital gains, dividends, interest, trading costs, sales charges, fees,expenses,andanyothercosts.Aftercalculatinginvestorreturnsindollarterms,two percentages are calculated for the period examined: Total investor returnrate and annualized investor return rate. Total return rate is determined bycalculating the investor return dollars as a percentage of the net of the sales,redemptions,andexchangesforeachperiod.20yearperiodended12/31/15.141.Technically,it’stheaveragedollar,nottheaverageinvestor.Forthesakeofclarity,it’sjustaswellwespeakaboutinvestors.142.Asof27January2018.143.ThedataweresourcedfromMorningstar.com,asof30April2016.Inthecourseofwritingthisbook,Morningstarchangeditsreporteddata,soIcannolongerupdatetheinvestorreturnforVINIX.144.AlessandraMalito,“NobelPrizeWinnerRichardThalerMayHaveAdded$29.6BilliontoRetirementAccount,”MarketWatch.com,6January2018.

145. Thomas Stanley and William Danko, The Millionaire Next Door(RosettaBooks,2010).146. Gary P. Brinson, L. Randolph Hood, and Gilbert L. Beebower,“Determinants of Portfolio Performance” (1986), Financial Analysts Journal42(4):39–44.147. Roger G. Ibbotson and Paul D. Kaplan, “Does Asset Allocation PolicyExplain 40, 90, or 100 Percent of Performance” (2000) Financial AnalystsJournal56(1):26–33.148.MichaelMauboussin,DanCallahan,andDariusMajd,“LookingforEasyGames,”CreditSuisse,4January2017.149. An increasingly large percentage of stock market activity is algorithmictrading through theworld’s fastest supercomputersexecutingprogramswrittenby some of the world’s top experts in finance, mathematics, and computerscience. Joshua M. Brown, “Who Are You Competing With?,”www.thereformedbroker.com,6March2017.150.Overa five-yearperiod,84%of large-capequitymanagers,77%ofmid-cap managers, and 90% of smallcap managers lagged their respectivebenchmarks. Over a 10-year period, the figures were 82%, 88%, and 88%,respectively.SeefurtherdetailseetheSPIVAU.S.ScorecardpublishedbyS&PDowJonesIndices,bit.ly/2FsoNGq.

TACTICS

Thepartwherewestrivefordecentoutcomes

D

8.GrayMatter

“Everythingmustbeassimpleaspossible,butnosimpler.”–AlbertEinstein

“Doubtisnotapleasantcondition,butcertaintyisanabsurdone.”–Voltaire

SimpleisnoteasyR. IGNAZ SEMMELWEIS was distraught. As chief resident of obstetrics atViennaGeneralHospitalinthe1840s,hewitnessedamountingnumberof

mothersdyingwithindaysofgivingbirth.Whatwasknownas“childbedfever”wasrunningrampantthroughoutthematernityward.Thepatternmadenosensetohim.Fromwhathecoulddiscern,thedeathrate

fornewmotherswashigher(about1in10)thanthatfor“streetbirths”(outsidethehospital),or inthehospital’sclinicformidwives,wherethedeathratewasabout“only”1in25.Itseemedthatmedicaloversightbya traineddoctorwasthedeadliestcarefornewmothers.Obsessed with finding a solution, Semmelweis attacked the problem from

various angles, some reasonable (the body position of the mother duringchildbirth), others less so (how priests rang bells in the ward upon news ofanother death). Meanwhile, other doctors in the ward continued to use“traditional” methods for curing the fevers, including bloodletting, blistering,frequentenemas,andagenerousapplicationofleeches.Noneoftheseworked.Semmelweisfinallyconcludedthat“cadaverousparticles”weretheculprit.A

normal day in a mid-19th century hospital could see a doctor work acrossnumerous practices, from obstetrics to pathology. Semmelweis deduced thatdoctors’ filthy hands, especially those covered with the blood and innards ofdeadbodies,infectedthemothers,whichledtofeverandinsomecasesdeath.Semmelweis’solutionwassimple:Washyourhands.Oratleastitsoundssimpletousinthe21stcentury.Inthescopeofhistory,it

wasn’t that long ago thatmostmedical doctors gave little thought towashingtheir hands between patients, or sometimes at all.151 But it works. At the

Viennese hospital, after handwashingwas required, death from childbed feverfellto1in100.Semmelweis’“simple”solutionwasoneofthegreatbreakthroughsinmedical

history,one thatover thecourseof futuredecadeshelped todevelop thegermtheoryofdiseasedevelopedbythelikesofJosephListerandLouisPasteurlaterinthecentury.Whatwetakeforgrantednowasobviouswashardlythatatthetimeofitsintroduction.

~

Simpleishard.Asprinciple andpractice, simplicity isnaturally appealing.Everygeneration

feels that itsworld ismore complex than that of the past, and as a result, theprospectofdampeningthenoiseisattractive.Simplicityisfarmoreelusivethanit first appears, however, in no small part because humans actually cravecomplexity.Welovehavingmanychoices,inanydomainoflife,whetheritbefood, friends,ormutual funds.Noonewhohasoverheard theorders ina longlineatStarbuckscoulddisagree.Choice,atitsdeepestlevel,isaproxyforthecontrolweperceivetohaveover

ourlives.Thus,havingmorechoicetranslatesintoagreatersenseofsafety.Wenaturallywantmore,notprimarilybecausewearegreedy,butbecausewewanttosurvive.Morecomplexisoftenmoreinteresting.Simplicity—inwork,love,art,leisure,

andeverythingelse—canbeboring.Wewant toenjoy the richnessof lifeandavoid dreary sameness.152We desire the “museumeffect”:You’d like to viewyour favoritepainting inanenvironmentwhere therearemanyother things toobserveandenjoy.Youwantyour favoritepairofblue jeansor thatonegreatThairestaurantdownthestreet,butyoualsowantafullclosetandtheYelpapp.Varietyisindeedaspiceoflife,andvarietyrarelymapstosimplicity.Thus,complexitysells.ComplainassomemightabouttheaislesatIkeaorthe

menuatTheCheesecakeFactory,thecrowdsneverstopcoming.Thisistrueinfinanceaswell.Onlyahandfulofbasicprinciplesareneeded toachievegoodinvestmentresults—bigexamplesincludebuylowandsellhigh,diversify,andsticktoyourplan—butwefail toexecuteonthesepartlybecauseofabiasforcomplexity. From cryptocurrencies to hedge funds, much of what is mostexciting inmoneyworld iswildly complex. “Invest for the long run” iswiseadvice,buttalkingaboutBitcoinsureismorefun.

We often prefer complex solutions to what we perceive to be complexproblems, the kinds with many dimensions and dynamics. This explains theappealof theoccasionalgeniuswhocansimplify inways thatotherscouldn’t.Mostfamously,Einstein turnedtheunderstandingof thephysicalworldupsidedownwith one elegant equation, granted one that tookmore than a decade towrite.Other iconoclasts, fromAristotle (logic) toDarwin(adaptation) toSteveJobs (design), imagined the world more elegantly, thus creating remarkablelegacies.Simpleisalmostnevereasy.Entropy,oratendencytowarddisorder,isapart

ofdailylife,asanyonewhohastidieduptheirhouseorcleanedouttheire-mailinboxfullyappreciates.There are fewdomains riper for simplification than investing. It is a jargon-

filled andmathematically complex arena inwhich the stakes of getting thingswrong are high. When you turn on CNBC, pick up theWall Street Journal,powerupaBloombergterminal,oreventalktoafinancialadvisor,complexitycanreign.Thus,simplicityisatooltofightback.It’shardtoacquire,however,which iswhy building a preparedmind according to the principle of adaptivesimplicitywillhelp.For investment decisions, we measure success in terms of meeting

expectations.A“good”decisionisonethatleadstoareasonableandappropriateoutcome,notone thatachievesotherarbitrarygoals likebeating themarketortrumping others. A “bad” decision starts with either vague or unrealisticexpectations. The simpler we can conceptualize the problem and then frameexpectations,thebetterpositionedweareforsuccess.In Chapter 9, I offer guideposts for how to set realistic investment

expectations.Butfirst,there’ssomewoodweneedtochopsotheyareasclearlyvisibleaspossible.Theproblemisthatthebrainpresentstwolargebarriersonthepathfromcomplextosimple.Theyare:

1. Categories.Theinvestmentbusinessisalinguisticminefield,filledwithlabels and jargon that rarelyclarify. “What is this?” sounds like abasicquestion,butit’snot.

2. Probabilities. The human brain prefers certainty,which undermines theabilitytothinkthroughrangesofoutcomes.Thereisskillinasking“Whatarethechances?”Fewthinkthisway,preferringincorrectprecisionovercorrectgeneralities.

Whileesoteric-sounding,afrankdiscussionof labelsandchancesisessentialfor the process of adaptive simplicity.With each, I’ll first discuss the generalproblem,andthenapplyittoinvesting.

Categories“Whatisthis?”I don’t know how many times a day each of us subconsciously asks this

questionof theworld aroundus.Thenumber is probably incalculablyhigh asour fast brain is always observing, making sense of the world, and seeing ifanything is out of order: Is this normal or is this surprising? Even before theinstincttowardfightorflight,wemustknowwhetherwe’veencounteredlionorlamb.Categories define our reality. From the trivial to the existential, they have a

strangleholdon theexperienceofourdaily lives.Yetwegive themalmostnothoughtwhatsoever. ThewriterDavid FosterWallace once told the followingstory:“Therearethesetwoyoungfishswimmingalong,andtheyhappentomeetanolderfishswimmingtheotherway,whonodsatthemandsays,‘Morning,boys,how’sthewater?’Andthetwoyoungfishswimonforabit,andtheneventually one of them looks over at the other and goes, ‘What the hell iswater?’”153

Categories are ubiquitous but largely invisible. Nonetheless, they haveconsequences,includingmakingusbetterorworseinvestors:Thosewhocancutthroughthenoiseandjargonofmodernfinancehavealegupinmakingbetterdecisions.NotedlinguistGeorgeLakoffwritesthat“Categorizationisnotamattertobe

taken lightly. There is nothingmore basic than categorization to our thought,perception,action,andspeech.Everytimeweseesomethingasakindofthing… we are categorizing.”154 Because of how System 1 thinking operates, weinstinctivelylabelorbucketeverythingwecomeacrossinourdailylives.Whensomethingdoesn’t fitwell, or seems to fit into twobuckets at once,System2needstoshowupandmakesenseofit.To level-set the discussion, a category is a class or division of something

regarded as having a shared characteristic. It is defined by the commonproperties of its members. The elm and oak out back? They’re both “trees.”Includethefernsandyouhave“plants.”Thehuskieandpoodleareboth“dogs,”

until the cat walks in the room and we’re dealing with “animals” or maybe“house pets.” The Chevy and Ford parked out front are “cars.” Include themotorcyclenexttothemandcarnolongerworks,but“vehicle”does.Thismaycomeacrossasanesotericexerciseinsemiotics,butit’snot.Quite

theopposite,itspeakstohowweperceivereality.Howweunderstandtheworld,and ourselves, is at base driven by the words and categories we have at ourdisposal.That’sbecausecategoriesinvolvenotjustdescribingtheworldbutjudgingit.

Whenweaskwhatsomethingis,wealsoaskwhetherit’sgoodorbad.Mostofthe time this is trivial: Someone prefers Splenda over raw sugar, even thoughthey’reboth“sweeteners,”albeitwithdifferenthealthimplications.Other times, the consequences are existential, especially with the perceived

purityofacategory.Whensomethingdoesnothaveallthevaluedfeaturesofacategory, it isdeemedtobeof lesservalue.TheUnitedStateswasfoundedonthepremise thatadark-skinnedresidentwas theequivalentof60%ofa“real”person.Likewise,allwhiteadultswerecitizens,butonly“men”couldvote.Thecurrentdebateovertransgenderrightsisadebateaboutcategories—whatfitsornot,what’slegitimateornot.Something“notfitting”isn’tnecessarilybad.Thecuttingedgeofnotfittingis

sometimes the engine of creativity and revolution. Stories of heliocentrism,citizenship, rock ’n’ roll (“that’s not music!”), and other tales of iconoclasmhave been central to human progress. But appreciating them is the realm ofeffortfulSystem2thinking.Atmost,System1tellsussomethingis“alike”or“different.”Asthenumberoffeaturesordimensionsincreases, itfalters.Thus,engaging in things that don’t make immediate sense requires extra work,strainingthepushtowardadaptivesimplicity.Nowlet’susethisquickdoseoflinguisticstobecomebetterinvestors.

CategoriesandmoneylifeLikethewaterinDavidFosterWallace’sstory,categoriessurroundtheinvestor,whethertheyrealizeitornot.Stocksandbonds,growthandincome,realestateandcommodities,aggressive

growthorcontrarianvalue,ironcondorsandcoveredcalls,cup-and-handleandthe triple bottom… the linguistic minefield stretches to the horizon. Indeed,hundredsof thousandsofsecurities—somethingwebuywhichwebelievewillprovide a financial benefit—are assigned categories, and never just one.Somethingmightbea“stock,”“healthcare,”“European,”and“largecap”allat

once, creatingadense latticeworkofoverlappingdescriptions.And then thosesecurities are expressed through various strategies—long, short, leveraged,optioned,andsoon.Our relief fromthedin is found instableandmeaningfuldescriptors.Physicist Richard Feynman’s observation that “Knowing the name of

something is not the sameasknowing something” shouldpenetrate finance asmuch as any other field in need of clarity. For example, I occasionally hearpeople say that they’re invested in “mutual funds.” Unfortunately, that claimreflectsafundamentalmisunderstanding.Sure,amutualfundisaproductthataconsumer can buy, but from a functional perspective (taking desired risks inorder to meet specific financial goals), a mutual fund is not a “thing.” Samethingwith the nowmassive industry of “exchange-traded funds,”which are aslightvariantofmutualfunds.Thephrase,“myadvisorputmeinmutualfunds”(or exchange-traded funds) is the equivalent to a salesman putting you in a“motorizedvehicle.”Car,truck,motorcycle,orboat?Withevenmoreesotericinvestments,theconversationgrowssquishier.These

could be annuities, mortgages, derivatives, or others, but take for example“hedgefunds,”apartofthemarketwhereIspentagoodportionofmycareer.Hedgefundduediligence,evenamonghighlytrainedinvestmentprofessionals,isprimarilyalinguisticexercise.Itaimstofigureoutwhataninvestment“is,”sothat we can set reasonable expectations for what it will do. The answer istypicallyfoundonlyaftermanyhoursofinvestigation.Hedge funds are described by some as a class of investments designed to

deliver “stock-like” returns with “bond-like” volatility, both terms themselvesquite vague. Others will define them as hyper-aggressive get-rich vehicles.Neitherdescriptionisgenerallytruebecauseinfact,“hedgefund”isnotevenalegitimateinvestmentcategory;itisnota“thing.”Ifwedelvedeeperinproperstrategy categories in this corner of the world—such as “global macro,”“arbitrage,” and “long/short equity”—we would quickly see that they don’tmatcheitherdescription.It’sreallyquiteamess.Weneedtocutthroughthejargonwithoutlosingsightofwhat’srelevant.How

dowedothat?Theanswerstartsbythinkingaboutlevelsofgenerality.Dowewant to think in terms of very broad, all-encompassing categories, or insteadfocusontheverynarrowlyspecific?A little bit of biology helps us out here. The basic taxonomies of the life

sciences are about as crisp and clear as they come.Taxonomies—a systemofconnected, coherent categories—move between global and specific. They are

definedviaahierarchyinwhicheachlevel“up”ismoregeneralthantheprior.In biology, we have, from most exclusive to most inclusive: Species, genus,family,order, class,phylum,kingdom,anddomain.Different traitsor featurestiememberstogether.Aparticularspecies,theredfox(VulpesVulpes)ispartofthegenusfox(Vulpes),whichisthenpartoftheCanidaefamily,whichincludesallfoxes,dogs,wolves,andjackals.Atthetopofthehierarchy,thedomain,isallanimals.Muchofthelinguisticconfusionininvestingcentersonthelevelofabstraction

atwhichyouchoosetofocus.ThismakesmoresensebyborrowingamapoftheworldfromMorningstar,aninvestor-friendlysourceofinformation.Here’s one very basic investment taxonomy, one with only two levels of

abstraction.Thehigherlevelisthetwomajorassetclasses,stocksandbonds.Anasset class, aswe discussed inChapter 7, is a group of securities that exhibitsimilarcharacteristicsandbehavesimilarly.

Inthistaxonomy,thesecondlevelisfiner-grainedstockandbondcategories,sometimes called peer groups. Morningstar offers us nine of each. For stockfunds, the two key axes are the size of the companies it invests in and theirvaluationmetrics(e.g.,accessingtheearningsofaslowgrowingutilitywouldbemuch cheaper than a fast-growing technology firm). Bond funds aredistinguishedbytheircreditqualityandtheirsensitivitytointerestrates.

Thus,inthisscenario,thereareatotal18categoriesthatinvestorscanchoosefrom, such asmid-cap value stocks or high-quality short-term bonds. A largepercentage of assets invested in all mutual funds fall into one of the 18categories.Foracategorytobemostuseful,itmusthavesomebasiccharacteristics:Well-

defined,measurable,andnon-overlapping.Inbiology,suchaswiththeredfox,that’scertainlythecase.It’slesssowithinvesting.ThetaxonomyIjustdetailedisonlyonepartofthefulltaxonomythatdefinestheworldofmutualfunds:

Oy. It’s now not hard to imagine how linguistic confusion creeps into theinvestmentselectionprocess.Fromtoptobottom,wemovefromgeneraltospecific.Inthefirstcolumnisall

funds,whichisnotameaningfulcategory.Thesecondcolumnisabroaderlistof asset classes, not just stocks and bonds, but specifically: Domestic stock,international stock, taxable bonds, non-taxable bonds, commodity, sector-

specific,alternatives(i.e.,liquidhedgefunds),andallocationfunds(adisparatearray of strategies only united by a dynamic allocation eitherwithin or acrossassetclasses).Beneath those seven types are 103 categories, too numerous to list. They

certainlydon’tabidebythenon-overlappingqualitynotedabove.Forexample,many of the “alternative” and “allocation” funds invest primarily in stocks.Domestic and international stocksare set asdistinct choiceswhenmostof thedrivers of those underlyingmarkets are the same.All of the stocks owned bysector funds will also appear in funds from the various diversified equitycategories.Andsoon.Icouldfillpageswithallof the linguisticchallenges inthistaxonomy,oranyotherthatareprominentlyusedbyanalystsandinvestors.LikeI’vepointedout,simpleishard.Sohowdowecutthroughtheconfusing

categories and other jargon? First, we ask the simple but powerful question:What is this? And we ask it as many times as is necessary to get to a clearanswer.Thefourcornersofthesquare,detailedinChapter9,willgiveyoualltheammunitionyouneedtoarriveataclearanswer.Partofthismindsetistryingtodistinguishattributesfromfunctions.Acarhas

doorsandtiresandanengine,anditalsotransportspeoplefromoneplacetothenext.Oneofthosefactsismorerelevantthantheother.Forinvestingpurposes,whatsomethingdoesismoreimportantthanwhatitis.Anofficialdefinitionofan asset class, as cited above, is a group of securities that exhibit similarcharacteristics and behave similarly, butwitness how even a formal definitionconflates attribute and function. Sometimes things that look the same don’tbehave the same. Conversely, different-looking investments can behavesimilarly.Second,weaccept that to label something is also to judge it.What category

somethingfallsintowillhavebothanempiricalandanormativequality:Whatisit,andisitgoodorbad?Intheinvestingworld,themainproxyforgoodorbadissafeorrisky.Is this category (pick any), and the choices within it, safe or risky? Here

assumptions can be dangerous. Take the basic distinction between stocks andbonds.Mostwouldsaytheformerisriskierthanthelatter.Butthat’snecessarilytrue,fortworeasons.First,factually,therearesomeveryriskybondsandsomeveryconservativestocks:Thinkaboutthestockofalargeutilitycompanyversusan unsecured bond issued by a tiny biotech firm. Second, it depends onwhatyou’retryingtoachieve(oravoid).Ifyourgoalistoaccumulatewealthoveralong period of time, bonds are riskier than stocks because over multi-decade

periods, stocks tend to return much more than bonds. The risk here is notmeetingyourgoal.Conversely,ifwedefineriskasshort-termvolatilityorlosingmoneyquickly,stocksareclearlyriskierthanbonds.Safetyorriskisintheeyeofthebeholder.

Probabilities“Whatarethechances?”We are notwired to think in terms of probabilities and this discomfortwith

statisticalreasoningisastumblingblockformakinggoodinvestmentdecisions.Why the difficulty?Because humans love certainty.Andwhywouldn’twe?

Going back to our evolutionary instinct for survival, our fast thinking brainsquicklydecidetofightorflee.Wedidnotcalculatethattherewasa72%chancethatthetigerwouldattackanda28%chanceitwouldhangback.Wedidthink:Looks dangerous and I’m getting the hell out of here.Notmuch has changedsinceourdaysonthesavannah.Thesubjectiveassignmentofprobabilitiestoanuncertainfuturesitsatthecore

ofbehavioralfinance.Forexample,imagineyourselfinthefollowingscenario.Youwalk into a glitzy casino.As far as you can see, in an area larger than afootball field,colorful lightsflash.There isactivityeverywhere,punctuatedbytheoccasionalscreamsfromaspotwheresomeonejustwonabigbet.Asyouenter the fray, pulse raised, you first come across roulette tables. Roulette isperhaps the least intimidating game in a casino, as it ismerely betting on theoutcomeofanumber,1 to35,spunonawheel.Evensimpler,youcanbetononeoftwocolorsassociatedwiththenumbers,eitherblackorred.Youstandbetweentwotablesdecidingwhichyou’regoingtomakeyourfirst

betof theevening.Conveniently,every roulette tablehasadigitaldisplay thatshowsthewheel’srecentresults.Here’sasimplifiedrenditionofthetwotables,showingthecolors,black(B)orred(R),butnotthenumbers:Table1:BBBBBBBTable2:BRRBBRBWhichtabledoyoubet?

Lestwe think casinooperatorsmagnanimous, thosedisplays arenot there toprovideyouwithhelpfulinformation.Instead,theymakeyouseeapattern—onethatdoesn’texist.ThesignsexisttotakeadvantageofSystem1thinking,whichcompelsustoseepatternsinnearlyalldimensionsofourlives.“Lazy”System2hangsoutandwaitstobesummonedtosolvetougherproblems.Atthecasino,youseeapatternatTable1:7blacksinarow.Youintuitively

sensethat“blackisaonaroll,”butuponquickreflection,youknowthat’snottrue.Assumingthewheelisbalancedproperly,alloutcomesarerandom.Table2’s jumbled color string is equally as likely asTable 1’s streak of black. Thechances of both strings are identical. Nonetheless, many gamblers wouldinstinctively think that precisely because it’s a balanced wheel that red is“overdue” and thus bet accordingly. Others might take the momentum bet ofblack extending its streak. In either case, a non-existent pattern drives thedecision.Randomness is not somethinghumans are particularly comfortablewith.We

tend tobelieve, due toSystem1 thinking, that theworld aroundus isorderedand mostly predictable. But we are frequently fooled by randomness, oneverything fromhot streaksat thecasinoor thebasketball court, to successorfailureinourcareersorwithraisingourchildren.NassimTaleb,theprolificandcocksure maven on probability, correctly observes that most events are morerandomthanwe instinctivelybelieve—which isnot tosay that they’reentirelyrandom.155Chanceandluckplayanenormousroleinlife’soutcomes,butwhenframedandanalyzedproperly,meaningfulpatternsexisttobediscovered.Because humans struggle with uncertainty, the mind often operates as a

“machineforjumpingtoconclusions.”System1isabusybeaver,makingsenseoftheworldatalltimes.Jumpingtoconclusions“isefficientiftheconclusionsarelikelytobecorrectandthecostsofanoccasionalmistakeacceptable,andifthe jump savesmuch time and effort.”Wemake theworld simpler andmorecoherentthanitactuallyis.156Doingsohasmixedconsequences.Oneistooverweightthelikelihoodoflow

probability events. Growing up in the 1970s, I was terrified that a massiveswarmofkillerbeesthatwassupposedlyhoveringinTexaswouldflynorthandravagemycornerofsouthwestPennsylvania.Idon’trecallhowIcameuponthatfear,butIvividlyrememberthinkingaboutit.(Thebeesnevercame.)Yet the mere fact of thinking about something, no matter how remote its

likelihood,rendersuspoorpredictorsofwhatthefutureholds.Thisisimportantbeyondkillerbees, shark attacks, orotherunfounded fears. It helps to explain

theappealofplayingthelotteryorpurchasinginsurance,bothexpensivebetsonlongodds. It alsoelevates the salienceof extremeevents that rarelyhappen—thinkofastockmarketcrashorcontractingaterminalillness—inourdecision-making.Anotherconsequenceofourdiscomfortwithrealprobabilitiesisthatoursense

ofwhat’spossibleisprimarilyshapedbytheinformationthat’srightinfrontofus at the time. As Kahneman says, “what you see is all there is.” This biastowardanchoringon the information that’smosteasilyretrievedfrommemoryhasseriousconsequencesforwhatwethinkcomesnext.Inroulette,ashortandrandomstreakofcolorsfeelslikeanactionablepattern.Anexcitingsocialmediastocksoaringhigher“feels”likeitwillkeepgoing.Anewsstorylastnightaboutcoyotes roaming theneighborhoodaltersourgeneralestimateof thechanceofwildlifeattacks.Thenowweighsheavily.Likewise, we are vulnerable to using conventional wisdom or other

unquestionedassumptionstoshapeoursenseofwhatcomesnext.Forexample,theBabyBoomergenerationhasbeenextremelyluckyintermsofstockmarketoutcomes.The1980sand1990s featuredextraordinarilyhighreturns.Thishasled many in this generation to have an elevated, somewhat unrealisticexpectationforwhatthestockmarketcandeliverovertime.Thethirdconsequenceofourdifficultywithprobabilitiesisthatourdecisions

arehighlysusceptibletohowaproblemisframed.Takethefollowingexamples:

To cure a dangerous illness, onemedicine has a 5%mortality rate.Analternative medicine has a survival rate of 95%. You choose thealternative.One package of cream cheese is “97% fat free.”A competing brand islabeled“3%fat.”Youchoosethefirst.

Inbothcases,thechoiceswereidentical.But,foratleastasplitsecond,that’snot how you felt about your choice. An economist or a statistician would bepuzzledbythisscenario,butpsychologistsarenot.Wearegenerallywiredwithweakpowersofstatistical intuition(not immediatelyseeing theseas thesame)andbeingamenabletonudgingbythecleveruseoflanguage.157

ProbabilitiesandmoneylifeCapitalmarketsdonotoffer anythingapproachingcertainty, thereforehumansusemental shortcuts to make sense of them, for better or worse. Investing—takingriskinfinancialmarkets—isaninformedguessatanuncertainfuture.158Ifweunwittinglyrelyonunarticulatedshortcutstomakethosedecisions,wecanseverelymismanageourexpectations,thuscreatingbadoutcomes.Like with categories and investing, the main task with probabilities and

investing is simply to recognize the problem in the first place. Better self-understanding creates better decisions, and in turn, better results. Moreconcretely, we must acknowledge the role that randomness and luck play infinancialoutcomes.Wenotonlyseepatternswheretheydon’texist,butwealsoassign causality to outcomes that isn’t there. She is a very smart portfoliomanager,theargumentmightgo,thereforethehighreturnsofherfundaredueto skill. That might be true, but skill is almost never obvious. Our defaultassumptionshouldbethatluckorrandomnessprevails.Skillisfarlessprevalentthanmanyinthemoneybusinessassume.Second,weshouldendeavor to think in termsofrangesofoutcomes,versus

pinpointestimates.Aswe’reabouttodiscussinChapter9,conventionalwisdomholds that stocks return “about 10%”per year. People also believe that stocksand bonds have a low correlation to one another. There is truth to bothstatements,but each is alsomisleading.Conversely,we shouldnot extrapolatetoomuchfromextremeevents.Thecarnageofthe2007–2009bearmarketstillloomslargeinmanyinvestors’minds,eventhoughthechanceofthatrepeatingisslim.Thepathtowardsimplificationreliesoncapablysettingexpectations,whichin

theshorterterm—notjustdaysbutafewyears—implicatesaverywiderangeofpossibleoutcomes.Therangewillnarrowintheverylongrun,butthatisatimeframethatfewcanemotionallyaccommodate.Finally,wewanttorecognize,andprobablyavoid,situationswithlottery-like

outcomes,meaningonesthathavetheremotepossibilityofaverylargepayout.Many types of investments fit this bill, including options-based strategies,aggressive growth stocks (i.e., finding the next Netflix), or lucrative one-offcorporateevents,suchasamergeroraninitialpublicoffering.WhenlegendaryeconomistJohnMaynardKeynessuggestedthat“It isbetter

to be roughly right than precisely wrong,” he nicely captured the spirit ofembracing the softness in the art of making good financial decisions. Our

aversion to ambiguity, that need for certainty andorder, constantlygets in theway,butit’sanimpedimentwehavethepowertoovercome,atleastfromtimetotime.

Finance’sfalseprecisionNo one would be mistaken to believe that the world of money, filled withnumbers and equations, is characterized by precision. It appears to be anengineeringproblem,oneinwhichaclearsetofstepsleadstoasingle,correctsolution.Alas,thisbeliefisuntrue.Andthat’sagoodthing.Investingisfarlessprecise

anexercisethanmostthink,whichmeansthatwithabitofpreparation,endingupintherightspotismoreachievablethanmanysuppose.ListentoCharlieMunger,oneofthegreatestinvestorsinhistory:“Wetendto

buythings…wherewedon’tknowexactlywhatwillhappen,buttheoutcomewill be decent.” Perhaps that’s some false modesty from someone who hasearnedbillionsinthestockmarket.Buthispointremainsnotonlyimportantbutapplicable:Accepttheuncertaintyofthisgame,remainhumbleinthepursuitofbetterthings,andthere’sadecentchancethatthingswillbeokay.Inourmoneylivesgenerally,we’vealreadycoveredavarietyofperspectives

oncalibratingameaningfullifewiththemeanstoaffordit.Andonthespecificissue of making good investment decisions, we’ve now tackled two majorimpedimentstoclearthinking:Vaguelanguageanddiscomfortwithuncertainty.Evading jargon and playing the odds are critical for employing adaptivesimplicity.Theyarepowerfultoolsintheprocessofmanagingexpectations.Lurkingaroundthiseffortarethethreemostimportantwordsininvesting:“I

don’t know.”Admitting to not knowing something, especially in light of howmuch information we have at our disposal, is unpleasant. It can feel like aweakness,whichiswhythewordsarerarelyuttered.But consider that humility—the emotional capacity to admit ignorance—

characterizessomeoftheworld’sgreatestinvestors,includingMunger,Buffett,andothers.It’snotatraitthatwenaturallyassociatewithtitansofWallStreet,

but in fact humility roots out overconfidence, allowsus to be lesswrong, andultimatelycompoundourwealthatreasonablerates,basedinpartontheroleofluck.AsI’veseenfirst-handintheworldofmoneymanagement,investorswillattributegoodoutcomestoskillandbadoutcomestoluck.That’ssolame.Luckis asmuch of an ingredient formarket success as anything else, a truth withwhichtheless-humbletakeumbrage.These hallmarks of great investors are available to us as well. Granted, it’s

easiersaidthandone.Insociety,wearenaturallycompetitive.Wenotonlywantmore, we want more than others. “Nothing so undermines your financialjudgmentasthesightofyourneighborgettingrich,”J.P.Morganoncesaid.Thetrue path to “winning” the investment game is not letting the perfect be theenemyofthegood,ofachieving“decentoutcomes.”Strivingfordecentoutcomesisasgoodandhonestaneffortaswecanmake.

It’salsotheeasierpath.Ourmentalenergyislimited.Adaptivesimplicity’stankcanruntoempty,atwhichpointcomplexityandimpulsivenessaremorelikelytowreak havoc. In the spirit of simplicity,we now turn explicitly to the fourcornersofthesquare.

151.Notthatitwaswell-receivedatthetime.Tothecontrary,hewasexcoriatedby prominentmembers of theViennesemedical community, who argued thatSemmelweis’ slipshod research proved nothing. Neither Semmelweis nor anyother doctors at the time knew about bacteria, let alone the germ theory ofdisease, which emerged in the ensuing decades. Many of Semmelweis’colleagues rejected handwashing (which they felt made them look bad). ThedispositiontorejectstrongevidenceforacontrarypositionhasbecomeknownastheSemmelweisReflex.152.DonaldA.Norman,LivingwithComplexity(MITPress,2010).153.DavidFosterWallace,“ThisisWater,”bit.ly/1g1U1QY.154. George Lakoff, Women, Fire, and Dangerous Things: What CategoriesRevealAbouttheMind(UniversityofChicagoPress,1987),p.5.155. Nassim Nicholas Taleb, Fooled By Randomness: The Hidden Role ofChanceinLifeandintheMarkets(RandomHouse,2005).156.Kahneman,Thinking,FastandSlow,pp.79,118.157.Kahneman,Thinking,FastandSlow,p.436.158.HowardMarks,TheMostImportantThing.

T

9.FourCorners

“Toachievesatisfactoryinvestmentresultsiseasierthanmostrealize;toachievesuperiorresultsisharderthanitlooks.”

–BenjaminGraham

“Don’tsweatthetechnique.”–EricB.andRakim

HETRAJECTORYOF ahappy life is shapedbyexpectations.When the futuremeetsorexceedsourexpectations,we tend tobehappy;when itdoesn’t,

we’re not. It’smore complicated than that, but not bymuch. This lens colorsboth the trivial and sacred. The experiences of using a vending machine andteachingyourchildtobekindareshapedbythesameneuralpathways.I designed the square tomanage expectations for investment outcomes. The

internalgutsofthisframeworkaredrivenbytheproblemsjusthighlightedwithbothcategoriesandprobabilities.Weneedtocutthroughthedensejargonoftheinvestmentworld to get atwhat reallymatters.Andwe need to unclench ourmindsabitandallowforbothrangesandrandomnesstodotheirthing.There are four—and only four—quantitative elements that enlighten any

potentialinvestment.159Theseare,tousethetechnicalterms:Returns,volatility,correlation,and liquidity.Asaproper taxonomy, itscategoriesaredistinctandirreducibletootherattributes.Thesearethefoundationalelementsofinvesting.Thisisthetechnicalrenditionofthesquare:

These wonky terms will mean something vague to regular people and veryprecisetofinanceprofessionals.Whileit’simportanttoknowthenamesoftherawconceptsinplay,let’stranslatethemintofourintuitiveyardsticks:

The square is the culmination of the path toward wealth, and a relativelycomplicated element of adaptive simplicity. So let’s be clear about what’s inmotion at this moment. We’ve established how categories and probabilitiesimpact cognition and decision-making. A basic understanding of both shouldmake System 2 thinking (critical at this stage) less tiring andmore effective.Loss aversion, a consistent theme throughout (e.g., alleviating sadness, lesswrong), remains highly relevant. In this context, managing downsideexpectationshasmorepsychicvaluethantakingaguessatthemaximumupside.Remember, successful investing is based more on minimizing regret thanmaximizinggains.Conversely,we’re not trying to comeupwith the singular “right” answer to

build the“best”portfolio.Academicsor investmentwonksmightcravewhat’s“optimal,” but aswe learned from the inventor of the efficient frontier,HarryMarkowitz,closeenoughisusuallygoodenough.Finally,thisapproachholdsnoquarterfor“hot”investments.Myyoungdaughterisobsessedwithunicorns,butweshouldn’tbe.It’sawasteoftime.Thegoalhereistomakegoodinvestmentdecisions.Wewanttoframethekey

issuessuccinctly,manageexpectationsproperly,andknowhowtoasktherightquestions. This is hard, so let’s try tomake it a bit easier by looking at eachcornerinsomedetail.

GrowthWebuyfinancialassetstomeetourdailyobligationsandfundourdreams.Whatthefinancial literaturecalls“returnoncapital”we’ll justcallgains,orgrowth.Wewantsomethingsmallertoturnintosomethingbigger.Inessence,growthisthe main “product” we buy from investment companies.160 We try to growfinancialcapitalbychoosing froma largemenuof instruments (stocks,bonds,funds, etc.), which number in the hundreds of thousands. In some sense, theotherthree“corners”serveasqualificationsongrowth.

Understanding what gains are reasonable in the near and distant futures isground zero of expectations setting. As the earlier discussion of probabilitieshopefullymadeclear,we’reinterestedinidentifyingwhatcountsasareasonablerange of outcomes. What’s a “normal” return for our investments? Thatobviouslydependsinwhichmarketsyouparticipate.I’mgoingtofocusontwo:U.S.stocksandU.S.bonds.

TheStockMarketForstocks,theconventionalwisdomissimplythis:Theyreturnabout10%peryear.161Askmy dad or your neighborwhat stocks “do” over time and they’llcomeupwiththatfigure,ormaybeabithigher.Loandbehold,theconventionalwisdomholdsanelementoftruth.Sortof.It’s important topausehere forabriefcommentonhowtoeven thinkabout

measuring growth over time.A lot of financial data, especially in the popularmedia, is discussed according to calendar years. “What did themarket do in______(fill inayear)?”ThatquestionisbandiedaboutonCNBC,intheWallStreetJournal,andeveryothernewsoutlet.TheproblemisthatitiscompletelyarbitrarytomeasuremarketoutcomesfromJanuary1toDecember31!Therearegoodculturalreasonstodoso(i.e.,it’sthewaymanyotherstalkaboutit,soit’sasocialequilibrium),buttherearen’tgoodanalyticreasonstodoso.Instead,Iprefertouse“rolling”timeperiods.Thesearesnapshotsofuniform

periodsfrom“Day1”toanotherdesignateddayinthefuture.Forexample,theone-yearperiodfromJanuary1toDecember31wouldbethefirstrollingperiodinaseries; thesecondwouldbeJanuary2 toJanuary1 (of thenextyear); thethirdfromJanuary3toJanuary2.Andsoforth.Theunitofmeasurementcanbedays,weeks,months,etc.Forananalysisofanentirecentury,whendailydatawouldbetoooverwhelming,monthlywindowswouldbe:JanuarytoDecember,FebruarytoJanuary,MarchtoFebruary,etc.Inadditiontobeingarbitrary,usingcalendaryearssharplylimitsthenumberof

observationswehave,dilutingthereliabilityofanyconclusionswemake.From1926 to 2017, which is the available data set on the U.S. stock market(specifically theS&P500 Index) thatmost analysts use, there are 92 calendaryear observations. By comparison, there are 1,091 rolling one-year periods inthat spanwhenusingmonthlywindows,andhundredsof thousandswithdailywindows.With a larger set of observations,we can bemore confident in ouranalysis.Alright,lessonover.

Here’stheevidencefortheaveragelong-termreturnoftheU.S.stockmarketoverrollingtimeperiods,fromone-yearrollingwindowstoten-yearwindows.

The“about10%”lineiscorrect.162Overone-andtwo-yearperiods,returnsareslightly higher owing to wild short-term performance swings that don’t getsmoothedout in thosewindows—butdoover the longerones.This looksniceandtidy.Unfortunately, “about 10%” ismisleading. It violatesmanyof the principles

we’vetriedtoestablishinourquestforwealth:

Itdoesn’tsetexpectationswell.Itignoreslossaversion.Itskipsoverthequestionofprobabilities.It generally disregards the importance of investor behavior in drivinglong-termoutcomes.

There’stheoldsawabouttheguywhoseheadisintheovenandfeetareinthefreezer, andsayshe feelsaboutaverage. Inanywalkof lifewhere thereareawide range of outcomes, averages become very misleading for settingexpectationsaboutanexperience.Preciselybecausepeopleliketousecalendaryear averages, it’s worth noting that in nearly a century of modern markethistory, themarket has rarely been even close to producing “average” returns.Averagedoesn’ttellyoumuchabouttheexperienceofrealpeople.Becauseinvestingisanemotionalrollercoaster,wemustunderstandrangesof

outcomes. The probabilitiesmindset fromChapter 8 is useful here.Using thesame rolling monthly data as above, here’s the “real” view on how to setexpectationsforthemarket.

This looks very different! Now you can clearly see how over shorter timeperiods, the rangeofpotentialoutcomes ismassive.Overourmore than1,000rollingone-yearperiods,theU.S.stockmarketclimbedasmuchas166%inoneyearandfellby67%inanother.Thosehugenumbersareoutliers,butthebulkof the range in the shorterwindows is stillmuchwider thanduring the longerones.Whatshouldjumpoffthepagehereisthatthelongerthetimeframe,thenarrower the range of outcomes. By the rolling six-or seven-year frames, therangestabilizes,thusmakingiteasiertosetexpectationsasalong-terminvestor.That said, easier does notmean easy—there is still a wide range of potentialoutcomesevenwhenwethinkintermsofdecades.To flesh this out a bitmore, here’s another image showing a distribution of

onlyrollingone-yearperiods.Inotherwords,I’vebasicallytakenthefirstlongverticallineaboveanddisplayedithorizontally.

Itresemblesa“normal”distribution,withshort“tails”andafatmiddle.Fromthiswecanseethatinanygivenone-yearperiod,theU.S.stockmarketusuallyreturnssomewherebetween+40%and-20%,whichisawiderange.Themostcommon result is between flat and+20%.But then contrast that to the rollingten-yearresults:

There are no “tails” in this image. Almost all the outcomes are annualizedreturns somewhere between 0% and 20%. There are some periods where therollingten-yearreturnisnegative.Toreiterate:Thelongerweholdriskyassets,

themorelikelytheyaretoreverttosomethingapproachingalong-termaverage.Thatsaid,thereisastillawiderangeofoutcomeseveninthis“longrun.”Thedifference between, say, 3% and 15% annualized returns over a decade hasmassive consequences for our money lives. In order to plan accordingly andavoid disappointment, we must maintain a probabilistic mindset, as best aspossible.

IndividualstocksFinally, one additional layer of detail will further refine our expectations forgrowingcapital.Todoso,wemovefrombroad“market”outcomestotheresultsfromindividualstocks.Thestockmarketis,well,amarketofindividualstocks,andmanyinvestorswillownsinglestocksratherthanabroadindexfundoranactivelymanagedbasketofthem(e.g.,mutualfunds).Thislayerstartswithanoddinvestingconundrum:

Thestockmarkethasdeliveredattractivegainsoverthelongrun,wellinexcessofcash.Moststocksdon’toutperformcashoverthelongrun.

Inotherwords,mostindividualstocksperformjustso-sotopoorly,butstocksin general perform well. Research shows that, dating back to 1926, 58% ofcommon stocks have a lifetime return of less than a one-monthTreasury bill,whichisaproxyforcash.163Wewouldcertainlyexpectoverthelongrun,moststocksshouldbeatoutcash.Thathasn’tbeenthecase.How could this be?To start, recall one of the key points inChapter 5: The

well-worn notion that taking more risk produces more return is inaccurate.Instead,takingmoreriskincreasestherangeofpotentialoutcomes:

Buying a stockmeans buying a fractional share of the company’s expectedfutureprofits.Asthoseprofitsmeetexpectationsornot,theinvestorwillbenefit

or lose. The problem is that many companies don’t do all that well. Thecompaniesthatwearemostfamiliarwithhavealreadymadeit(agreatexampleofwhat is known in statistics as “samplebias”), andwedon’t see the smallercompaniesthatneverclimbtheladder.Infact,overthepast90years,only4%ofcompaniesexplainthenetgainfor

theentireU.S.stockmarket.164Thetop86stocks(outof26,000)accountedfor50%ofthe$32trillioninwealthcreationduringthisspan.IwasshockedwhenIsawthesenumbers.Tobetterunderstandthis,wemustrelyonasomewhatcomplicatedstatistical

concept:Skew.Takethismade-upexampleasaneasyfirststep:MydaughterispartofaGirlScouttroopwhichhasanannualcookiesale(thatpartisnotmadeup). There are ten girls in the troop and nine of them sell only $50worth ofcookies.Mykidsells$100ofcookies (perhapswith thehelpofsomeonewhobought a few extra boxes of Samoas). Thus, the troop raised $550 and the“average” Girl Scout made $55, meaning that 90% of the girls had “belowaverage”results.Onlyone-in-tenwas“aboveaverage.”It’sasillyexample,butit shows skew in action: Extreme outliers create a group average that’s notrepresentativeofanysinglememberofthegroup.The history of individual U.S. stocks features a similar dynamic. As noted,

morethanhalfofstocksthroughoutmodernhistoryunderperformedcash.Butahandful put up fantastic results. This picture, which is a subset of the entirehistoricalperiod,capturesitwell:165

What’sshownis theoppositeofabellcurve!Mostof theeventswereintheextremes.Here,likewiththefullhistoricaldataset,morethanhalfofthestocksduring this time underperformed cash. It reflects the very different emotionalexperience one can have in the market if relying just on high-level data andsimpleaverages.

Thisentirecurrentexercise isaboutmanagingexpectations.Sowhenwesaythat stocks make “about 10% per year,” it would be a mistake to assign theoutcomeoftheentiregrouptotheattributesofanymemberofthegroup.Thisissometimes called the “ecological fallacy.” Any individual stock can be a dud(e.g.,GeneralElectricoverthelastdecade)orarocketship(e.g.,Amazonoverthe last decade). Additionally, it points toward the most important tacticinvestors have for participating in the market: Diversification. We can’t pickonlyAmazonsbeforetheytakeoff,sothebestbetistoownabroadswathofthemarket.

BondsTheothersegmentofastandardportfolioisbonds.Comparedtostocks,settinggrowthexpectationshereisrelativelyeasy.Forabigportionoftheconventionalbond market, especially standard corporate-and government-issued bonds,startingyield isa reasonablepredictorof total return (capitalappreciationplusaccruedincome)atthetimeofthebond’smaturity.Therearemanyintricaciesinbond world, so it’s worth noting that this general relationship is truer for abroadly diversified portfolio of bonds than any single bond.166 This pictureroughlycapturestherelationshipbetweenyieldandreturn:

Never lose sight of what a bond is: It is a loan to another party, usually agovernment or a corporation. The mathematics behind fixed income arefabulouslycomplicated.Thatsaid,thefirstitemofconsiderationinthisareaofthe capital markets is almost always the creditworthiness of the borrower,sometimes referred toas“credit risk.” Ifyou lendmoney to theU.S.orSwissgovernments, you will be paid back.Want to lend money to the Venezuelangovernmentor a troubledautopartsmanufacturer?Thechance thatyoumightnotgetpaidtheincomeandprincipalyouexpectedexplainswhyinthepictureabove, the range of potential outcomes expands as the creditworthiness of theborrowerdeclines.Ashasbeenaconsistenttheme,takingonmoreriskincreasesthevariabilityoffutureoutcomes,notallofthempleasant.

BigpictureongrowthWith the growth of financial assets, there’s an overarching rule formanagingexpectations:Thepriceyoupay is aprimarydeterminantof long-term results.Specifically,themoreyoupay,thelessyouwillget.Thelessyoupay,themoregrowthyouwillfind.That experience doesn’t square with most other consumption experiences.

EveryyearItakemykidstotheChicagoAutoShow.I’mnotmuchofacarguy,butthekidslikerunningaroundandsomeofthevehiclesaresupercool.Tostatethe obvious, more money buys you a bigger engine, sleeker design, moreadvanced engineering, and better technology.Wemake this assumption aboutprice and quality, or at least price and features, in most of our consumptiondecisions. Yet the purchase of investment products works in the oppositedirection:Allelseequal,themoreyoupay,theworsetheresultsyou’relikelytoachieve. While this applies to fees on investments, it’s more relevant forvaluations:Howmuchvalueyou’rewillingtoassigntoacompany’sprofits,abond’syield,orothermeasuresofintrinsicworth.

Thegraphicaboveoffersathumbnailofthisbasicrelationship.Asvaluationsclimbhigher,expectedreturnstrenddown.Theconventionalwisdomatthetimeofthiswriting,asreflectedintheMcKinseydatapresentedinChapter1,isthat

both stock and bond markets are richly valued. That suggests a higherprobabilityofalowerreturnenvironmentinthefuture.Wedon’tknowwhatthefuture holds, but setting overall growth expectations based on reasonableprobabilities,andnotjustlookinginthehistoricalmirror,istheprudentwaytoplan.

PainThe resale price of almost everything you own changes over time.Your cars,books,house,clothes,baseballcards,andBeanieBabies—ifbroughttomarket—would likely sell for something different today than theywould amonth oryearfromnow.Thisisn’ttoodisconcertingbecausewedon’tlooktooffloadourpossessionsonafrequentbasis.Noristherealwaystransparencyintothepricesfor most of your stuff. That’s changed some with eBay and other onlinemarketplaces,butthisisn’thowwethinkaboutitmostofthetime.Anexceptionisinvestments,whosepriceschangeeveryday,oftenmanytimes

per day. That’s different than saying their value changes every day, but in sorecognizingthat,weencounteroneofmoneylife’smostchallengingproblems:How to emotionallyhandle thatvolatility inprice, independentofwhether theasset’sunderlyingvaluehaschanged.Behind its growth profile, an asset’s volatility is its secondmost prominent

feature.Volatility is the jumpiness in the price of those instruments. It’swhatinspires short-term—and often bad—decision-making. Investors tend to buyhighandselllowduetovolatility,thusunderminingtheirownfinancialfutures.The “behavior gap” evidence presented elsewhere in the book speaks to thisinabilitytostomachtheshort-termgyrationsinprice.Volatility is the emotional cost of achieving the growthwe seek.Long-term

growth charts of stock and bond markets show remarkable appreciation overtime.Butsuchchartsdon’tgiveanysenseofhowdifficultitistoholdontoourinvestmentsduring themanyroughpatches thatoccuralongtheway.Theridematters.Toproperlysetexpectations,wehavetowonderwhat theridewillbelike.Howbadmightitget?AndamIwillingtopaythatprice?

Totranscendthepotentialpain,onethingthatwehavegoingforusisthatit’seasier to set expectations for volatility than it is returns. That’s because someassetclassesareconsistentlymorevolatilethanothers.Stocksaremorevolatilethanbonds.Smaller-capstocksaremorevolatile thanbigger-capstocks.High-yieldbondsaremorevolatilethaninvestmentgradebonds.Generally, theroadfrom lending (owning bonds) to profit participation (owning stocks) growsbumpier.Near-termprofitsarefarlesspredictablethananabilitytopayinterestonaloan.Even thoughvolatility ismorepredictable than returns, that jumpiness (even

whenknown)encouragesbaddecisionsalongthecycleofgreed(buyinghigh)and fear (selling low). Volatility is the “price of admission” for access topotentialgains.Seemingly straightforward, this perspective is at oddswith popularwisdom,

that“volatilityisnotthesamethingisrisk.”WarrenBuffett,HowardMarks,andother luminaries have long promulgated this misleading concept. Buffett andMarksareasclearthinkersandwritersastheinvestmentworldhastooffer,sothe disconnect here stems from conflicting objectives of market masters andnormal people. The market masters aim to exceed some benchmark and/ormaximize profits, while our goal is meet specific life objectives. Of course,“more”soundsgreat,buthopefullywe’veputthatbabytobedbynow.Risk is the chance you won’t meet your financial goals. Defined as such,

volatility is one of the most important risks around. When not properlyanticipatedandpreparedfor,thejumpinessofyourinvestmentsbouncesyououtofthegame,whichisthenhardtogetbackinto.Recallhowtheaverageinvestorrespondedtothecalamityof2008.Heorshesoldnearthebottomofthemarket,lockedinmassivelosses,andthendidn’tgetbackintothemarketforyears.Numerically,volatilityisatoughconcept,nomatterwhatwecallit.(Thestock

market historically has a “vol” of around 17—a number with no intuitivemeaning.)Thebestwaytomakejumpinessfarmoreemotionallyrelatableistoalsodiscussdrawdown,acloselyrelatedbutsimplerconcept.Drawdownisthedepth of the real-world decline in any particular market, asset class, or otherinvestment.Herearethelargesthistoricaldrawdownsforfourprimaryassetclasses.167

Thereal-worldexperienceofstocksismoretumultuousthanitisforbonds,asevidenced by the averages. But the range of bad outcomes shows thatsupposedlymoreconservativeinvestmentsarenotimmunefromsteeplosses.Insomeways,investorsaremorecomfortablewithstockmarketlossesthanbondmarketlosses,asbondsaresupposedtoserveastheballasttoaportfolio.Thus,managingexpectationsproperlyiscritical.Drawdownshaveabehavioralcost.Thisnexttableishardlyscientific,tosay

theleast,butitisbasedonimpressionsofhowinvestorsdealwithlosses.

Asthe lossesgrow,affect turns increasinglynegativeandactionsgrowmoreextreme.Thedeeperthedrawdown,themorepainfultheride.

FitIowna lotof fleece jackets. Idoubtyoucarewhy,but I’ll tellyouanyway: Ifind them extremely comfortable in a wide range of weather conditions fromsummer evenings to dark Decembers, which helps with Chicago’s volatileseasons.Ialsolikethewaytheylook,havecoolpocketsformystuff,andeasilypackfortrips.SoIbuyalotofthem,manymorethanIshould.Weareallcreaturesofhabit.Welikewhatwelikeandtendtogobacktothe

samevendorsforthesameproductsoverandagain.Cars,make-up,clothes,fly

reels—you name it. It’s sometimes easy to forget that investing is a form ofconsumption,somanyofthesamebehaviorandhabitsweexhibitwithanSUVoreyelinermanifestinourcapitalmarketsactivity.We’redrawntoacertainstyleororientationofinvesting.Wedeemourselves

“aggressive” or “conservative.”We like particular sectors or themes that feelright to us.We’re attracted towhatwebelieveweknowbetter, forwhichwehave a higher comfort level. An important example is owning stock in thecompanyyouworkfor (doublingup thebetonbothyour financialcapitalandhuman capital), or in the typeof companyyouwork for. For example, you’reemployedatadigitalmediacompanyandtiltyourstockmarketinvestmentstoFacebookandTwitter.Furthermore,yougravitatetowardaplaceyouthinkyouknow:“Homebias”is

prevalent investor behavior. Canadians, Australians, British, Americans andothers tend to hold a disproportionate amount of stocks based in their homecountries.This is a formof availabilitybias—wearedrawn towhat’s right infront of us and don’t considerwhat’s less visible. Aggravating this is the so-called endowment effect, which basically states that we prefer something byvirtueofalreadyowningit.Thethingswe’realreadybiasedtowardbecomeevenmoreso.Wetendtolikeandholdwhatwealreadyown.Buyingthingswedon’tlikeisnotthemostnaturalthingtodo.Notimesoon

am I picking up a denim jacket or amoisture-wicking Lulu Lemon get-up to“balanceout”myfleece.Yetwithinvesting,we’resupposedtodojustthat.Oneof the central principles of investing is to own a lot of different investmentswhichdon’tresembleeachother.Infact,thelesstheyresembleeachother,thebetter. The more uncorrelated our portfolio investments, the more likely theportfolioshouldprovetobeareliable,all-weathervehicle.Foranyinvestor,includingthemostsophisticated,correlationisatoughnutto

crack.It’samathematicallycomplexmetricwhichmeasuresthe“covariance”ofmultipleinvestments.It’stheextenttowhichpricesofinvestmentsmoveinsyncwitheachother.Whybother,then?Becauseoneofthehallmarkfindingsofmodernfinance—

one that’s actually practical—is that a smartly-assembled portfolio of lower-correlated assets provides a leg up to achieve better returns more smoothly.More growth, less pain.So, it’sworth understandinghow the next investmentfitsintoalargerplan.HowdoesitimproveuponwhatIalreadyhave?Isitworthit?AmItakingadistinctriskormerelydoublinguponwhatIalreadyown?

These relationships are not something you can see with the naked eye.Mathematically,correlationsrangefromperfectlypositivetoperfectlynegative.Aperfectly positive correlation is onewhere the price of two assetsmoves inperfectlockstep.Izig,youzig.Withnegativecorrelations,Izig,youzag.Thereareprecisemathematicalcalculationsforcorrelation,butalotofartcomeswiththat science. For example, the chosen time frame matters. We can measurecorrelation across days, weeks, months, or years. It’s a somewhat arbitrarydecision,butwhethersomethingis“uncorrelated”ispartlyafunctionofthetimeframeyouchoose.Second, correlations vary over time. They are unstable. The correlations

betweenandwithincategoriesofstocks,bonds,realestate,andsoforthchangedepending on circumstances. And here’s the rub: Correlations tend to spikehigher when markets get jumpy, which is exactly what you don’t want.Correlation is a fickle friend, usually showing up for the party, but rarely thefuneral.Here’s a snapshot of the average correlations (based on rolling three-year

periods, going back roughly four decades) for those same four major assetclasseswelookedatbefore.

Acorrelationof1.00meansthepricesoftwoassetsmoveinlockstepwithoneanother.Imagineatightflockofbirdsflyinginperfectformation.Correlationiszero when the price of two assets have nothing to do with each other. Themovementsofasquirrelscamperingaroundameadowareindependentofbirds’

pathsabove.Ahuntercanaimforthebirdsorthesquirrel,butnotboth.Lowercorrelationisasourceofsafetyinaportfolio.Thisshapshotisincompleteasitdoesn’tcapturehowthingsmovetogetherin

therealworld.Thefollowingimageisabitmorecomplicatedasitshowsrangesinsteadofpointestimates.Butit’sbetterforhelpingusmanageexpectations.Thenextgraphicshowstherangeofrollingthree-yearcorrelationsofbig-cap

stocks to the three other asset classes. You can see that around the averagecorrelation there is a wide spread of outcomes. The box along each verticalrepresents two-thirds of all historical outcomes,which ismeant to capture the“what happens most of the time” sensibility. The maximum and minimumcorrelation over rolling three-year periods, going back a few decades, is alsoillustrated.Therangeofcorrelationsbetweenbig-capstocksisrelativelynarrowwith smallcap stocks, but expands significantlywhenmeasured against lower-qualityandespeciallyhigher-qualitybonds.

Thenext graphic rounds out the analysis by showinghow these ranges shiftthrough time. You can see right away that correlations are not stable. Mostnotably,focusonthelineforhigher-qualitybonds:Itjumpsaroundinlow(butpositive) correlation territory in the 1980s and 1990s, but then shifts to adifferentpatternoverthepast15yearsorso.

Theselasttwoillustrationsshowthatanystaticimageofhowoneinvestmentrelatestoanothercanbeunreliable.Inthecontextofallthesedata,whichcanbeconfusing,whatisitthatinvestors

reallywant?It’snotthetechnicallypurerconceptoflowcorrelation,butratheruncorrelatedassetsduringtoughtimes.Ourtruedesireisinvestmentsthatallgoup during the good times, but then play defense well during bad times.Unfortunately, this is something we almost never see and reality tilts moretowardtheopposite:Correlationsamongassetclasses tendtoriseduringcrisisbecauseliquiditytendstodryupduringscariertimesandmanyinvestorsraisingcash are indiscriminate sellers. By far the best example of correlation’s ficklefriendship is 2008, when the prices of most asset and sub-asset classesplummetedinsync.Finally,owningabasketofinvestmentsthatfitwitheachother,meaningthey

do not all move in sync, is emotionally unpleasant. If you own truly lower-correlated investments, it means that something in your portfolio won’t be“working”whenmanyotherthingsare.Correlation drives the magic of diversification, the most sensible tool for

building a portfolio. Sensible, yes, but also annoying. Investors have becomeconditioned to believe that they want to own a diversified portfolio, but theyoften don’t like the reality of diversification. Like vegetables, diversification

sounds healthy but doesn’t always taste good.With true diversification, therewillalwaysbesomethinginyourportfoliothatstinks.Evenwhat appear to be attractive investments don’tmatter if they don’t fit.

Unwittinglydoublingdownonriskswealreadyownandaremostcomfortablewithisasurewaytodeludeourselvesintothinkingourportfolioismoresafelypositioned than it actually is. Like returns, correlations tend to move up anddown,making the fit question difficult to answer.Understanding the range ofhistoricaloutcomesisaboutasgoodwecando.

FlexibilityThefourthandfinalelementofinvestingisliquidity.Narrowlyunderstood,thisis the ease or difficulty by which you can buy or sell something. If I go toAmazon,IcaninstantaneouslychooseanElmoreLeonardclassic,payforit,andhave it shipped for next-day delivery. If I wanted to sell my house today, Icouldn’t.IfmywifeandIwantedtoadoptachild,wewouldneedtogothroughanarduous, lengthyprocess. Ifwewantedsomegroceries for tonight’sdinner,wecouldgetthemimmediately,withoutproblem.ThemarketforGetShortyandgroceriesisliquid;themarketforhousesandbabiesisnot.The prominence of one-click online brokerages (think Schwab, Fidelity, or

eTrade)gives the impression that investing is alwayscheapand seamless.Notso.Dependingonthetypeofinvestment,itcanrangefromeffortlesstodifficult.For technicians, this is the world of bid-ask spreads, market makers, andsupercomputers. Securities become more or less liquid depending on a widearrayofinputs.Fornormalpeople,however,liquidityisaquestionofflexibility.Itisaproxy

fortheabilitytochangeone’smind.IfIwanttopivot,canI?WillIbestuck?Ifso,isthatabadthing?Beingabletopivottowardadifferentdirectionliesatthecenterofoursurvival

instinct.Thatabilityisaproxyforcontrol,somethingeachofusvaluesdeeply.Both freedom from constraint and the freedom to chart our own course arepowerfulmotivators.Fewcravelimits.

Indeed,theprincipleofadaptivesimplicityispremisedonanabilitytochangeone’smind.Theentiresectiononthecirclewasbasedontheneed,opportunity,and ability to respond to change. At the same time, adaptive simplicity alsorequiresus tostick toaplan.Hence there’sabalancingactbetweenflexibilityanddisciplinethatishardtogetright.Onewayofcorrectlyaddressingthemeritsofflexibilityistoaskwhetheryou

arebeingcompensated for relinquishing it.Whenyou sacrifice somethingyouvalue,whatareyougettingbackinreturn?Intraditionaltermsofliquidity,thisquestion isoneaskedeverydaybysophisticated investorswhodeal inprivateequity, real estate, energy partnerships, and the like. What those guys in thepinstripes are doing is figuring out whether giving someone their capital formany yearswill produce a return far in excess ofwhat they could potentiallyearn in fully liquid markets. In other words, they are assigning a value tooptionality,oropportunitycosts.That’s the stuff of regular finance, but I’d stress a second, more relevant

questionaboutthebehavioralcompensationforinflexibility.ThinkbacktotheChapter 7 example of the two Vanguard mutual funds—identical in portfolioholdings, but different in structure. In one case, the fund was owned indiscretionary accounts where people could come and go every day withoutdifficulty.In theothercase, thefundwasownedinretirementaccounts,whicharemorecumbersome to tinkerwithand includeanauto-invest (or “set it andforgetit”)toggle.Thatslightdifferenceindesignhasproducedwildlydifferentbehavioraloutcomes.Thosewithlessflexibilityachievedbetteroutcomes.Imagineascenarioinwhichatage25youinvestedachunkofmoneywhich

thencouldn’tbetoucheduntilretirementatage65.ShortofArmageddon,yourcapitaloverthat40yearsshouldcompoundatahighrateofreturn.Youwouldlikely accumulate one of the best track records around, beating even thoseseasonedmoneymanagerswhoaretryingtonavigatethemarket’snear-termupsanddowns.The issue at this corner of the square is howmuchone iswilling to forsake

control in order to allow their assets to grow unimpeded. There are distinct“decisionprotocols”wecanemploytogetustowardgoodlong-termoutcomes.ThefirstistheUlyssesscenario:Tieyourselftothemastasyouknowaheadoftimeyoucan’t resist thecallof thesirens. In themarkets, thismeans thatyouknowvolatilityspooksyou,soyouwanttopre-committoastrategytostaythecourse.Youeliminateyourowndiscretion.Attheotherendofthespectrumisretaining full flexibility and accepting that you’ll need to be patient and

disciplined.Theupsideinthisprotocolisthatyoucanchangeandadaptasyouseefit.Allmodern investorsseriousabout their long-termoutcomesshouldconsider

thevarious formsof availablepre-commitment strategies.Significant evidenceshowsthatinvestorswhoavailthemselvesofauto-investmentstrategiesintheirworkplaceretirementprogramstendtosavemoreanddobetterovertime.168Theroutine is particularly useful during bear markets, when you’re automaticallyinvestingasthemarketbecomescheaper.Anothersetofsolutionsareso-called“targetdate” funds,whereinyou target theyearyouwant to retire (say,2040)and the fund operates as a fully automatedmulti-decade investment program.Overtime,thoseportfolioswillshiftfromanemphasisonstockstoanemphasisonbonds,whichmeansrebalancinganddynamicassetallocationarebuiltin.Insum,whileit’shardtomakeanapriorijudgementcallthateither“staythe

course”or“benimble”isbetteradvice, investorsputthemselvesingoodsteadbyappreciatingthetrade-offs.

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Thecornersofthesquareallowustocapablymanageinvestmentexpectations.Equippedwithsomeinsightoncategoriesandprobabilities,wecannowasktherightquestionsattherightlevelsofabstraction:

Whatarereasonablegrowthexpectationsformymoney?Top level: Be prepared to ask about the ranges of historicaloutcomes.Deeper level: Understand that inflation-adjusted, or “real,”numbersaremoreimportanttoknowingwhatyou“get”fromthemarketintermsofpurchasingpower.

WillIbeabletoenjoythosegains,orwilltheemotionaldiscomfortoftheinvestments’jumpinesscompelmetosell?

Toplevel:Bepreparedtoaskaboutthehistoryofdrawdowns.

Deeper level:Understandhow thevolatilityof an asset classhaschangedovertime.

AsIthinkaboutbuildingaportfoliomadefromseveralinvestments,haveI built a truly diversified mix of assets, one that necessarily includespiecesthatarelaggingorappeartobe“notworking”?

Top level: Be prepared to ask about how correlations mightincreaseduringmarketcrises.Deeper level: Understand the implications of how differentinvestmentstylesmoveinandoutoffavorfortheperformanceofyouroverallportfolio.

Howeasyordifficultisitformetochangemymindaboutmyindividualinvestmentsandthecompositionoftheportfolio?

Top level: Be prepared to appreciate that discretion is a double-edgedsword.Deeper level:Don’t bother—this topic is incredibly technical, sofocus on understanding your own inclinations rather than thetechnicalsofliquidity.

The financial concepts of returns, volatility, correlation, and liquidity—letalone more complex ones—are potential sinkholes for an investor’s limitedmentalenergy.Thus,afocusonfewerkeyideasexemplifiestheuseofadaptivesimplicityatthislaterstageofthepushtowardfundedcontentment.

IntothecenterWhenviewedinrelief,thevastmajorityofthesquare’sfootprintisemptyspace.That’sanaptvisualasweheadintothefinalstretch.Forasmuchas Ihope thepreviousdetailon the squareproves tobea solid

tooltosetandmanageportfolioexpectations,especiallyduringrockytimes,anintellectual and emotional understanding of those elements is an incompleterecipeforsuccess.It also requires grapplingwith the concept that after a reasonable plan is in

place, do nothing. Or as close to nothing as is practically feasible. By doingnothing,weletcompoundingdoitswork.Compoundingisthequietprotagonistinmoretalesofprogressthannearlyany

ofushasconsidered.EinsteinsupposedlycalleditthemostpowerfulforceintheuniverseandGeoffreyWest’sblockbuster treatise,Scale,detailshowany typeof complex system—cities, companies, our bodies, plants, financialmarkets—

canbeunderstoodthroughthelensesofcompounding,exponentialgrowth,andnon-linearity.169 (If you thought probability was a hoot, you’ll love non-linearity.)Compounding is the basic mathematical principle that over time something

willgrowexponentiallyiflefttoitsownmomentum.CharlieMungerexplained:“Thefirst ruleofcompounding:Never interrupt itunnecessarily.”Thatappliesto the thingswe like, such asmoney.And to thosewe don’t, like debt,wheninterruptingtoxiccompoundingisthetoppriority.The following image has two important takeaways. I took $100 and

compoundeditannuallyby8%.Thefirstlessonisthatevensingledigitgrowthrates produce huge gains over time. In this case, after 25 years, our $100 hasgrownalmostseven-fold.Aneasytricktointuitivelyunderstandthisisthe“Ruleof72,”whichtellsushowlongitwilltakeaninvestmenttodoublegivenafixedannualrateofcompounding.Bydividing72bytherateofreturn,youcangetaroughestimate forhowlongadoublewill take.Thus,at8%(72÷8), it takesaboutnineyears.

Thesecondpointisevenmoreinteresting:Therateatwhichsomethingscalesacceleratesasgrowthproceeds.Idrewverticallinesonthegraphtomarkwhenourinvestmenthaddoubledfromthepreviouspointofdoubling.Seethatateachdoubling interval, the time period shrinks. At each next stage of its growthtrajectory, a larger number is beingmultiplied, so organic growth accelerates.Thisistheexponentialfunction.Thisisnon-linearity.

LiterallythousandsofbookshavebeenwrittenabouthowWarrenBuffettbuilthis fortune. Some of them are quite interesting, but blogging savant MorganHouselmakestheverycleverpointthatnearlyallofthemmissedwhat’slikelythemost transportable lesson of the Buffett story: He started very young andcompounded his wealth from there.170 Housel heralds the relevance of the“freakishly small base,” the fact that almost everythingverybig in life startedoutassomethingverysmall.Veryfewofusstarted investing ingradeschool.Orhighschool.Orcollege.

Orinour20s.Buttherearefewsurerwaystoachievegrowththanstartingearly.Itprovidesa remarkableadvantageoverothers.Nor is it ever too late to start.There’sanoldChineseadagethatthebesttimetoplantatreewas20yearsago,andthesecond-besttimeisnow.There issomefriction in thisnarrative,however.Understanding thedynamic

ofcompoundingisdifficult.“Thegreatestshortcomingofthehumanraceisourinability tounderstandtheexponential function,”physicistAlbertBartlettoncesaid. Exponential growth might sound straightforward, but it’s hard to intuitbecause early-stage growth is so slow moving that’s it barely observable,misleading us into thinking we’re not making progress. Humans are linearthinkers, making it hard to imagine that a “freakishly small base” can growfabulously large.171 It’s onlywhenwe arrive in those later years,when thingshaveaccelerated,thatweviscerallyrealizehowitworks.Even assuming a perfect intellectual understandingof compounding,we still

findways to avoid its benefits.Along theway,wewatch, get involved, learnmore,tinker,obstruct.Wethusgetinourownwayandinturninhibitthechangeweseek.Thereisanimpulsetodosomething—somethingtomakethingsbetter,or something just because we can’t sit still. Jason Zweig notes that“Approximately 99% of the time, the single most important thing investorsshoulddoisabsolutelynothing.”172Doingthatmeansgivingupcontrol,whichwedon’tdolightly.Oneofthegreatestskillsininvestingispatience,theStoicabilitytodonothing

deliberately.Inourmoneylivesandwellbeyond,thosewhohavemasteredtheartofdelayedgratificationaremorelikelytoexcel.AwonderfulseriesofstudiesbyWalterMischel,aStanfordprofessorofearly

childhood development, have demonstrated that some children are disposedtowardself-control,whileothersareimpatient.Mischelofferedthematreat—a“marshmallowtest”—andallowedthemtoeatonenoworenjoytwolater.Somekids sat stalwart, waiting for an extra treat, while others gobbled up the one

marshmallow as soon as it was permitted. Mischel and his colleagues thenmonitoredthedevelopmentofthesechildrenforthenextseveraldecades.Theyobserved that those with a natural sense of self-control fared much betterthroughoutchildhoodandadulthood.They“hadalowerbodymassindexandabettersenseofself-worth,pursuedtheirgoalsmoreeffectively,andcopedmoreadaptivelywithfrustrationandstress”whentheygrewintoadults.173Patience matters, but it has always been a challenge for mankind. The first

humanstoryintheBibleisoneabouttemptationinwhichAdamandEvedidn’tfare so well. In our age of endless information and distraction, things havegrownconsiderablyworse; theancient applehasbeen replacedby themoderniPhone.Even when Dr. Seuss’ Great Places are visible in the distance, it’s often

unclearhowwegetfromheretothere.Havingtherightmindsetiscritical,butachievingthatcanbetaxing.We’retorn:Wefeelcompelledtotakecontrol,tolean in.Butat thesame timeweknowthere iswisdomin lettinggo,allowingwell-madeplanstoruntheircourse.Wewouldlovetodonothing,butoddlyittakesagreatdealofforesightandwillpowertodoso.Doingnothingisdenyingthealluringpowerofnow.

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TheGeometryofWealthconcludesinthenextchapterbyaddressingthistensionbetweendoingnothinganddoingsomething.Ithinkmostbookswithapracticalangle, especially in finance, aim towrap thingsup in anicely tiedbow.Theyoffertightchecklistsorworksheetsthereadercanusedowntheroad.Let’sbuckconvention,gointheoppositedirection,embracethemessinessof

reality,anddealwiththingsastheyare.Onthatpathwe’llfinallyacknowledgethat throughout this journey, there’s been a gremlin nipping at our ankles,makingprogress harder thanwe’d like.He has darted in and outmany times;perhapsyounoticedhim.Thatgremlinistime.Our relationship to time—better put, to temporality—implicates some of the

most mind-bending and exciting conversations in philosophy, psychology,economics, and neuroscience. Humans have a unique ability to mentally zipthrough time,movingbackandforth through thepast (memory), thenow,andthefuture(imagination).Wearetimetravelers,ofasort,onesthatmustnavigatethe relationship between the current and future versions of one’s self.Recognizing this tension, and then striking a balance between its various

manifestations—more versus enough, progress versus presence, and becomingversusbeing—isthefinalstoponthepathtowealth.

159.Thereareimportantqualitativeissues,especiallyaroundthebroadtopicoftrust.IcoverthatextensivelyinTheInvestor’sParadoxandfocushereonthissortofquantitativeevaluation.160.Theotherprimaryproductisincome.Iamnotgoingtoaddressthatinthisbook.161.See,forexample,ElroyDimson,PaulMarsh,andMikeStaunton,Triumphof the optimists: 101 years of global investment returns (PrincetonUniversityPress,2002);JohnC.BogleandMichaelW.NolanJr.(2015),“Occam’srazorredux: Establishing reasonable expectations for financial market returns,”Journal of Portfolio Management 42(1); Brian D. Singer and Kevin Terhaar,Economic foundations of capital market returns, Research Foundation of theInstitute of Chartered Financial Analysts, 1997; State Street Global Advisors,Long-termassetclassforecasts(releasedquarterly).JeremyJ.Siegel,Stocksforthe long run: The definitive guide to financial market returns and long-terminvestmentstrategies(McGraw-HillEducation,2014).162. Market data for the graphics in this chapter have been sourced from:Morningstar, Ned Davis Research, Robert Shiller’s online database(www.econ.yale.edu/~shiller/data.htm),andportfoliovisualizer.com.163.HendrikBessembinder,“DoStocksOutperformTreasuryBills?”JournalofFinancial Economics, forthcoming; working draft, 21 November 2017,bit.ly/2kYSl3K.164.Bessembinder,“DoStocksOutperformTreasuryBills?”165.Thedata issourcedfromaworkingpaperfromJ.B.Heatonetal.,“WhyIndexing Works” (May 2017), which was cited in Ben Carlson’s blog,awealthofcommonsense.com.166.Moreaccurately,yield-to-worstisthebetterpredictoroftotalreturnforanindividualbond,oryield-to-maturityfornon-callablebonds.167. Big company stocks refer to the S&P 500 Index. Small company stocksrefer to the Russell 2000 Index.Higher quality bonds refer to the BloombergBarclaysU.S.AggregateBondIndex.LowerqualitybondsrefertotheBarclaysU.S.CorporateHigh-YieldBondIndex.168. Richard Thaler and Shlomo Benartzi, “Save More Tomorrow: UsingBehavioral Economics to Increase Employee Savings” (2004), Journal of

PoliticalEconomy112(1):S164–S187.169. Geoffrey West, Scale: The Universal Laws of Growth, Innovation,Sustainability, and the Pace of Life in Organisms, Cities, Economies, andCompanies(Penguin,2017).170.MorganHousel,“TheFreakishlySmallBase,”bit.ly/2A1VMON.171.Housel,“TheFreakishlySmallBase.”172.JasonZweig,“SavingInvestorsFromThemselves,”WallStreetJournal,28June2013.173.WalterMischel,TheMarshmallowTest:WhySelfControlistheEngineofSuccess(BackBayBooks,2015),p.5.

SHAPELESS

Abrieffinale

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10.YouAreHere“Nothingisenoughforthemantowhomenoughistoolittle.”

–Epictetus“Themiracleofmindfulnessis,firstofall,thatyouarehere.”

–ThichNhatHanhFloatorswim?

HE AWARD-WINNING MOVIEWall Street is an infamous tale of avarice bestknownfortheline,“Greedisgood.”Spokentoacrowdofhundredsbythe

financierGordonGekko, the sentiment holds both bombast andmeaning.Thebombastisobvious.ThedeepermeaningcomesfromGekko’squalificationthatallthegoodthingsinlife—notjustmoney,butart,love,andknowledge—comefromaninsatiablequestformore,forpushingtheboundariesofwhatwealreadypossess.(TheexecutivesatTeldarPaperdidnotseemenlightened.)Thatfamouslineisbookendedbyalesser-known,butequallyimportant,momentinthefilm.It occurs during a heated exchangebetweenGekko andhis protégé,BudFox.HavingjustlearnedthathisownnaïvetépositionedGekkotomakeafortuneattheexpenseofFox’sfamily,Foxharangueshisformermentor:FOX:Howmuchisenough,Gordon?Whendoesitallend,huh?Howmanyyachtscanyouwater-skibehind?Howmuchisenough?GEKKO: It’s not a question of enough, pal. It’s a zero-sum game—somebodywins,somebodyloses.Moneyitselfisn’tlostormade,it’ssimplytransferred—fromoneperceptiontoanother.Likemagic.Together,thesetwoscenescrystallizenotonlythetensioninthemovie,butin

moneylifegenerally:Wantingmoreversushavingenough.Gekko is an extreme case of cravingmore.A titanofWallStreet, his “zero

sum” message is that money merely keeps track of wins and losses. Gekkorelishes the hedonic treadmill (he literally walks on a treadmill in one scene,which I’ll chalk up to coincidence), and he’s comfortablewith short bursts ofpleasureorpain.Granted,he isnotalone invaluingmoney formoney’s sake.We’reall thatway,at leasta littlebit.Moneywillalways informoursenseofself-worthandplaceintheworld.Havingmore—especiallymorethanothers—ispsychologicallymeaningful.Tothinkotherwisewouldbenaïve.174Thatsaid,fewofusarelikeGekko.MostofusarelikeBudFox:Aspirational

but torn between pushing formore versus valuingwhat one already has—not

justmaterialpossessions,buttheloveoffamily,community,andothersourcesofcontentment.BudFoxbreakinghisfather’sheartwasthesaddestmomentofhis life, far more impactful than whatever joy he earned from his playboylifestyle.Throughoutournarrative,wehavedefinedwealthasfundedcontentment,the

abilitytounderwriteameaningfullife.Thishasbeen,byandlarge,astoryaboutenough.Aristotle’seudaimonia,theDalaiLama’sjoy,andthehighestrungsoftheCantril Ladder are found in the sources of deep contentment—connection,control, competence, and context. These are contemplative pursuits whichinvolveanappreciationforwhatonehasversuswhatonehasyettoachieve.Enough sounds great. “He is awisemanwhodoesnot grieve for the things

which he has not, but rejoices for those which he has,” said Epictetus. “Becontentwithwhat you have.Rejoice in theway things are.When you realizethere isnothing lacking, thewholeworldbelongs toyou,”LaoTzu remarked.And, of course,Oprah: “Be thankful forwhat youhave; you’ll enduphavingmore. If you concentrate on what you don’t have, you will never, ever haveenough.” Indeed, each of us can recall a time, especially on the back ofdisappointment, when we “count our blessings”—to consider all of what wehave,versuswhatwedon’t.Thesecanbewarm,fulfillingmoments.Yet enough is hard. It is harder than more. More is a deeply wired

evolutionaryinstinctforsurvival.Humanshavenotonlysurvivedbutdominatedallotherspecies inpartbecauseofouraspirationalnature.Wesurvivenot justby fendingoffdangers,butbyseizingopportunity.Enough—deeply importantand the wellspring of reflective happiness—can be uncomfortable because itfeelslikewe’reshuttingdownanimportantpartofourselves.Whichweare.Thisemotion is intensely feltby thoseat theendof theirworking lives.The

shift from employment to retirement, from accumulation to decumulation, ishardly just the next stage of financial planning. It is also an existentialreorientation, one in which people are confronted with a change in purpose.Motivationslikecompeting,winning,andcontrolyieldtosettlingandaccepting.Retirementpartiesandgoldwatchesnotwithstanding,thisisatimeinlifewhichresearch has shown is fraught with sadness.175 This shows that we areprogrammedtostriveformore,nottositquietlyandenjoywhatwehave.Mostofthetimemostpeople,ateverystageoflife,wantjustalittlebitmore.

We’re almost there. Take a look at data from the 1970s through the 1990sreportedinJulietSchor’sTheOverspentAmerican.Theyreflectanswerstothequestion:“Inordertoliveinreasonablecomfortaroundhere,howmuchincome

peryeardoyouthinkafamilyoffourneedstoday?”It’sstrikingthatoverthesetwodecades,peopleconsistentlywantedslightlymorethantheyalreadyearned.More recent surveys have corroborated that very few people believe that theycanachievehappinesswiththeamountofmoneytheyalreadyhave.176

At any moment in life we have to decide whether we want, as Hunter S.Thompsononceframedit,“tofloatwiththetide,ortoswimforagoal.”177Weharboranurge todoboth, toappreciate themoment, tocherishwhereweare,butthenalsotopushoutforthatnextthing,togettothatnextGreatPlace.Strikinganongoingbalancebetweenmoreandenough—betweenprogressand

presence, swimming and floating—sits at the core of enjoying awealthy life.How, then, do we find that balance? It’s not easy, because this is where thegremlinoftimegrowsmoreirksome.Indeed,whatwerealizeisthatasweightyasthequestionofmoreversusenoughseemstobe,itisactuallyjustaskirmishontheedgeofamuchbiggerbattlefield.

TimepilotsThe tug-and-pull between enough andmorespeaks to the rhythms of the relationship between ourcurrentandfutureselves.Theadaptiveselfhasbeenourprotagonist all along and is shaped by a conversationbetween now and later, between who we believeourselvestobetodayandwhowemightbeinthefuture.

Yes,moneybewildersbecauseitisanalyticallycomplexandemotionallycharged.Butitalsooverwhelmsbecauseitacts,inasense,asaninvoluntarytimemachinewhichrockets us to and from different versions of ourselves.Thisisn’tterriblycomfortable.Wearemental time travelers.The happinesswe feel—both experienced and

reflective—isdrivenbywherewesituateourselveswhenthinkingforwardsandbackwards.InAbrahamHeschel’sbeautifulwords:“Theauthenticindividualisneither an end nor a beginning but a link between ages, both memory andexpectation.Everymomentisanewbeginningwithinacontinuumofhistory.Itisfallacioustosegregateamomentandnottosenseitsinvolvementinbothpastandfuture.”178Webecome.This facility with time—navigating back and forth between memory and

imagination—setsusapartfromtheotherspecies.Allanimalsinthewildhaveaninstinctfordangeroropportunity:Thecheetahsensesthepresenceofitspreyandliesinwaitfortheperfectmomenttosprinttowardthekill;thegazellealsosenses thepresenceof thecatandboltsat the first signofdanger.Thehumanpowerofprospectionallowsustothinkwellbeyondanimmediatecontext.Thescopeandcomplexityofourmentaltimetravelisfarbeyondanyotheranimal.As a group of eminent psychologists have suggested, we are not onlyHomosapiens (wise humans), we are also, equally importantly, Homo prospectus(prospectivehumans).179Mentaltimetravelcreatesadistinct,powerfulabilitytoplan.DanFalkbluntly

observesthat“withoutanimaginedpictureofthefuture,ourcivilizationwouldnotexist.”180Indeed,ourskillwithtimefacilitatessocialcooperation.InChapter4, we discussed at length the importance of connection to the human psyche.One distinctly human element of our sociality, facilitated by language, is theability to make plans far in the future. My friend and I can agree to meetdowntownnextTuesdayat10:00am. It sounds trivial,butnootheranimalcanremotelycoordinatetheireffortslikeso.The subject of time is trippy.But in theworldofmoney, it is hardly a “left

field”topic,anarrativeindulgenceattheendofacarefullychartedjourney.Infact,weareunwittinglycaughtinthemiddleofanimplicitsquabblebetweenthetwoprimarydisciplinesthatdefineourdailyengagementwithmoney—finance

andpsychology—whichemploynotonlydifferentbutincompatibleassumptionsaboutthenatureandimpactoftime.Financepositsalinearconceptionoftime.Adayisadayisaday.Onefive-

yearperiodispreciselythesamedurationasanotherfive-yearperiod.Episodesof time are uniform andwe experience them unidirectionally, from present tofuture.Psychologydisagrees:Thehumanexperiencewithtimeisnon-linearandlumpy.Thedurationofthosesecondsanddecadesexpandandcontract.Timeiselastic. It slows down during traumatic accidents and speeds up as we growolder.There’sanold line in theworldofparenting that“thedaysare longbuttheyearsareshort.”That’smindtimeatplayandmindtimeiswhatmattersinthepursuitofwealthasfundedcontentment.The blocking-and-tackling of conventional financial planning works with a

linearconceptoftime.Weplanfor“goals”whichareXnumberofyearsinthefuture.Wemake decisions today about desired but uncertain future outcomes.When we achieve those goals—usually something quantitative that can bemeasured—we’resupposedtobehappy.We’velearnedthatitdoesn’tworkthisway.By far the most powerful trope in the straight time of finance is “the long

term.”Webuildportfolios for the“longrun.”We“buyandhold”or“stay thecourse.”We remain patient—sacrificing now for later.Here’s the problem: Inmindtime,thelongtermisfuzzyatbest.Practicallyspeaking,itmightnotexist.All we have, really, is an infinite series of short terms stapled together bycircumstanceandchoice.Whilethefuture’sshadowiscastacrossnearlyallofmoneylife,wearenotentirelyequippedtodealwithit.Wearetimepilots,butnotalwaysgoodones.

NowandlaterTheabilitytomentallyzipbackandforththroughtimeisoneofourgreatadvantages,buttheactofdoing so has mixed consequences for our state ofcontentment.Thissimplematrixshowsboththegoodandbadactionsassociatedwithmentaltimetravel.

Howwedeliberatelynavigatethismatrixsitsatthedeepestcoreofachievingfundedcontentment.

Now In the short term, impulse is our enemy. The “marshmallow test”substantiateswhatweall likelyalreadyknow tobe true:Westruggle to resistquick gratification. Self-control and patience are elusive. In money life, thatbecomesaproblembecauseofthetemporalgapbetweendecisionandoutcome,betweenconsumptionandenjoyment.Youbiteintothatjuicycheeseburgerandtheflavorhitsyoursensesin…30years.Asaresult,moneylifedoesn’thavemuchofaflow.Thereisthedrudgeryof

earning a paycheck, the boredom of saving, and the anxiety of “long-term”investing.Withoneexception:Spending.Inthatdomain,unliketheothers, thefeedbackisimmediate.Cash,swipe,orchip:Spendinghappensrightnow.Andconsumer research shows that “retail therapy” is literally that.Apurchasewillrelease dopamine in the brain, providing a temporary high.181 It feels good toshop.Our ability to think through time and see our future selves has limitations.

Mostprofoundly,wediscount thefuture:wevalue todaymore than tomorrow.Timediscountingisanevolutionaryinstinct.Wedidn’tpassonkillingthesmallanimalrightinfrontofusinhopesofmaintainingourenergytoattackalargerherdoffatteranimalsthatmayormaynotcomelater.182Wetendtoliveinthenowbecauseitseemsthesaferthingtodo.It’snotjustthatwevaluethefutureslightlylessthanthepresent.Oneofthe

mostimportantempiricalfindingsamongthosewhostudyintertemporalchoiceisthatwediscountthefuturehyperbolically.183Wepreferatinybitnowtoalottomorrow. The perceived value of what we will get later declines extremelyquickly,whichiswhyimpulsecanfeelquitecomfortable.

Furthermore, hyperbolic discounting—theweight of now—is a key factor inmakinguspoorpredictorsofwhatmakesushappyin thefuture.We“stumbleon happiness,” using Harvard psychologist Dan Gilbert’s phrase, because wedon’t know where to look for it.184 Sometimes we find it, other times not.Humans are poor at what is known as “affective forecasting,” the ability toaccurately predict our emotional reaction to future events. That’s because theimaginationisnotparticularlypowerful.Thebraintendstoforecastonlyavaguesenseofthefuture.Asaresult,wetendtobequitewrongaboutthedurationandintensityofour

future emotions.You can probably guess correctlywhichwill bemore fun, agoodfriend’sbirthdaypartyorattendingacoworker’sfuneral.Thatsaid,manypresumablylife-changingevents, includinggettingmarried,havingchildren,orbecoming ill, usually don’t have the impact we think they will.185 Almost nomatterwhathappens,goodorbad,wegetused to it.Thepleasure (sorrow) ingettingwhatwedesire(fear)fadesquickly.Ifthedownsideofnowisimpulse,thenitsupsideispresence,beinghere.The

subjectofpresencehas takenonnewlife in today’scacophonyof informationanddistraction.186Somewheresituatedbetweenbeforeandlaterthereisanow,delicateandelusive,tobecultivated.Eventoacasualobserver,itshouldcomeasno surprise that theartsofmeditationandmindfulnesshave foundgrowingcurrencyinWesternsocieties.Theneedformentalquiethasscaledinsympathytothespikeinhowmuchinformationwechooseand/orareforcedtoabsorb.Inour financial lives,presenceandpatienceareclosely related.Patience isa

stillness where we find moments of deliberate inaction. Doing nothinghaphazardlyismerelycomplacency.Wespanfromcomplacencytopatienceviapreparation.Truepatience involvesexplicit recognition thatyouareboth righthereandrightnow.Suchmindfulnesscanbediscomfiting.Itcanalsoprovetobe liberating. Throughout The Geometry of Wealth, we’ve been building apreparedmindbasedontheprincipleofadaptivesimplicity.

LaterDelayedgratificationandresistingtemptationarehallmarksoftheblessedpresent, but they have a dark side as well. Looking toward the future canundermine the quest for wealth. Psychologist Sonja Lyubomirsky frames the“mythofhappiness”asthefalsepromisethat“I’llbehappywhen______.”Fillin theblankwithanythingyou’d like:Rich,beautiful,married,successful,andso forth. The problem of “when” courses throughout our money lives. Thehedonictreadmill,discussedatlengthinChapter5,bestcapturesthisproblem’s

never-endingdynamic.Some pursue their money lives fixated on the “number”—some specific

amountof savings theyneed to stopdoingwhat theydon’t enjoy (presumablyworking) and start doingwhat theywant and be happy. Living in this skinnyfuture is ungratifying. Even the mundane use of “goals” quietly stokes theproblemofwhen,giventhenaturalbutunremarkedtensionbetweenthewaywefinanciallyplanforourfuturesandwhatourbrainsarewiredtoaccommodate.Over-planning,obsessingaboutgoals and the “right”decisions, and thinking

thatsprintingonthetreadmillgetsyouclosertoyourdestination,areunfortunateinstances of the unhappy later. This is where the pathos of more and latercoincide.A paradox ofwealth is thatwe are indeedwired towantmore, butgettingmoredoesn’tmakeushappier.Wecandealwiththefuturemoreconstructively,however.Buriedinthefocus

on later are the seeds of self-realization, themaking of the adaptive self, andprogress.Humanshavean“innatedevelopmentaltendency,”meaningtheyhavea conscious and deliberate urge to grow.187 Jonathan Haidt describes the“progress principle” in which “pleasure comes more from making progresstowardgoalsthanfromachievingthem,”that“wesurroundourselveswithgoals,hopes, and expectations, and then feel pleasure and pain in relation to ourprogress.”188Muchofexperiencedjoyisinthegettingthere—it’sintheride,notthedestination.189How the self changes, and what control one has over that process, is

controversial.The19thcenturyphilosopherFriedrichNietzschethrewdownthehammerwhenhebluntlyproclaimedthat“Beingisanemptyfiction.”Hescoffsat “the lie of thinghood, of substance, of permanence.”190 It is a philosopher’sindulgencetopaintsuchboldstrokes,butthefactremainsthatthepursuitofabetterversionofone’sselfandtoseeupsideinimpermanenceisalegitimateandeven involuntary instinct.Somewhatcalmer thanNietzsche,WinstonChurchillnotesthat“Toimproveistochange;tobeperfectistochangeoften.”Engagingchangeforcesanevaluationoftheconversationbetweenthecurrent

and future self.Combining brain science, psychology, and consumer research,theworkofHalHershfieldandhiscolleagueshasbeenparticularlyenlighteningonthistopic.Forexample,theyhaveuncoveredthatsomecaremoreabouttheirfuture selves, while others see that person as a stranger. Differences indiscounting have significant behavioral consequences.191 In one set of studies,Hershfield took a photo of an individual and then used digital imagingtechnologiesto“age”himorherbydecades.192Thosewhowereabletoseethat

senior image registereda strongerconnectionwith their future selfand in turndemonstrated better savings behavior. How much you reward the future youinsteadofyourcurrentselfstemsfromhowwellyouwanttocareforhimorherinthefuture.Anumberofotherstudiesvalidatethatamorevividsenseofthefuture results in better behaviors, not only in savings but also with crime,truancy,smoking,andother“suboptimal”activities.193Tocareaboutyouinthefutureismoreofadeliberateactionthanwemightthink.Wecanalsoimprovetherelationshipbetweennowandlaterbythinkingmore

constructively about future rewards. Numerous studies show that anticipationincreaseshappiness.194Wenotonlyliveinanageofdistraction,wealsoenjoyaworld of unprecedented convenience. Just like Veruca Salt in Willy Wonka“wants it all and wants it now,” many of us have easy access to, well,everything. The problem is that one of the subtle joys in life comes fromanticipation, but we’re Amazon Prime-ing that away. There are emotionalbenefitsofdelayedconsumption,includingthepleasureofmilduncertainty(thepowerof surprise) andbetter decision-makingon impetuousunhealthy actionssuchaswithfood,drink,ordrugs.Onetackforrealizingtheupsideofmanagedanticipation is to pay now but consume later.195 There’s something stodgy-sounding about the “layaway” plans of yesteryear, but that pay now/consumelater isabetterrecipeforhappiness thantheconsumenow/paylaterregimeofthemoderncreditcard.

Keeping the pace Imagine trying this: Jump into aswimmingpool.Nowstarttreadingwater.Thenkickintoabackstrokeacrossthepool—butcontinuetodogpaddlein place. Floating or swimming is a choice that seemsmutually exclusive. To be simultaneously still andmoving forward is a tough ask. So is pursuing bothpresenceandprogress.A few thousand years of philosophy hasn’t resolved the deepest ontological

tensionbetweenbeingandbecoming.Ithinktheresolution,oratleastasfaraswecanget,istounderstanditonourowntermsandperhapsfindsomekindofrhythmalongtheway—tomanagethedialogue.Thisbook,Ihope,hasprovided

someof thevocabulary tohave that chat, not just inyourownhead, butwithyourfriends,parents,partners,andchildren.In one of his fabulous TED Talks, Harvard psychologist Daniel Gilbert

observed, “Human beings areworks in progress thatmistakenly think they’refinished.”196Howtrue.Anhonestrenditionoftheadaptiveselfwillacceptthatattimeswearestrangerstoourselveswhosubsequentlyfindjoyindiscoveryandredefinition.It’sremarkable—evendisconcerting—tothinkhowmuchmoneyseepsintothe

poresof this rockwe’re climbing. If you recall fromnearly the first page, themost prevalent question I encounter with people I meet is:Am I going to beokay?That’ssuchadangerousquestion:Itrendersvulnerableeventhetoughestsouls,whichiswhythereseemtobecountlessproxiesforthatquestion,bothinwordandgesture.Butit’srightthere, inescapable.I’mguessingthatyou—justas I—default to answering the question by focusing on what it means to be“okay.” The path from circle to triangle to square has been explicitly about aprocess of underwriting meaning—utilizing money to achieve happiness.Hopefullyyou’vefoundsomeperspectivesandtoolsandtricksalongthewaytobeuseful.ButfollowingtheadviceofCharlieMunger,whatifweinvertthequestionand

makeitaboutunderstanding“I”insteadof“okay”?Thisiswherewebringthefull force of time—where we can co-opt that pesky gremlin for our ownpurposes,nothis—to reframe thequestionofhowmoneyfigures intoahappylife,ofwhatitmeanstobewealthy,andhowtogetthere.Here,withthegremlinonaleashwecanconnectwhoyoubelieveyourselftobenowwithwhoyou’dprefer to be in the future. Toto,we’re not in the conventional land of financeanymore.The entire narrative of The Geometry of Wealth has been, of sorts, a Stoic

playbook fornavigatingmoney life,moving fromperception to action towill.Self-awarenessandself-controlhavebeenkeyprinciplesalongtheway.Aimingto incorporate bothmindset and action, adaptive simplicitywas engineered astherudderforeachofourboats.Adaptivesimplicityembracesthetensionsandcontradictionsinpresenceversusprogress.Infact,itgainsenergyfromthem.Thisworld of ours is filledwithwonder and sadness, delight and suffering.

Acceptanceofthisconditionbringscomprehension,withcomprehensioncomescontrol, andwithcontrol comesbalanceand rhythm.Ourdartinggremlinnipsanddodges,butweareultimatelyitsmaster.Thebook’sepigraphfromGoethe

speaks not to the substance of each day, but its flow: “Do not hurry. Do notrest.”Keepthepace.Andenjoy.

174.There is a large literature on thepsychological stingofmaterialism.See,e.g.,TimKasser,TheHighPriceofMaterialism (MITPress,2002); JamesA.RobertsandAimeeClement,“MaterialismandSatisfactionwithOverallQualityofLifeandEightLifeDomains”(2007),SocialIndicatorsResearch82:79–92;Tim Kasser and Richard M. Ryan, “The Dark Side of the American Dream:CorrelatesofFinancialSuccessasaCentralLifeAspiration”(1993),JournalofPersonalityandSocialPsychology65(2):410–22;ErichFromm,ToHaveortoBe? (Harper & Row, 1976); Joseph Chancellor and Sonja Lyubomirsky,“Happiness andThrift:When (Spending)Less is (Hedonically)More” (2011),Journal of Consumer Psychology 21: 131–8; E. Solberg, Ed Diener, and M.Robinson,“Whyarematerialists lesssatisfied?” inT.Kasser,&A.D.Kanner(eds.), Psychology and Consumer Culture: The Struggle for aGood Life in aMaterialistWorld(AmericanPsychologicalAssociation,2004),pp.29–48;K.D.Vohs, N.L. Mead, and M.R. Goode, “The Psychological Consequences ofMoney” (2006), Science 314: 1154–6; T. Carter and Thomas Gilovich, “Therelative relativity of experiential and material purchases” (2010), Journal ofPersonalityandSocialPsychology98:146–59.175.OliviaMellonandSherryChristie,“TheSecretSadnessofRetiredMen,”ThinkAdvisor.com,30July2014;BrendaBouw,“MenVulnerabletoBoredom,DepressioninRetirement,”TheGlobeandMail,25March2017.176.CitedbyDanielCrosby,www.nocturnecapital.com.177.SourcedfromShaneParrish,FarnamStreetblog,bit.ly/1IMXXGO.178.AbrahamJoshuaHeschel,WhoisMan?(StanfordUniversityPress,1965).179.MartinE.P.Seligmanetal.,HomoProspectus (OxfordUniversityPress,2016).180.DanFalk,InSearchofTime:TheHistory,Physics,andPhilosophyofTime(St.Martin’sGriffin,2010).181. Bret Stetka and Kit Yarrow, “WhyWe Shop: The Neuropsychology ofConsumption,”Medscape,22November2013.182. Alex Kacelnik, “The Evolution of Patience,” in George Loewenstein,DanielRead, andRoyF.Baumeister, eds.,TimeandDecision:Economicand

PsychologicalPerspectivesonIntertemporalChoice (RussellSageFoundation,2003).183. David Laibson, “Golden Eggs and Hyperbolic Discounting” (1997),Quarterly Journal ofEconomics 112, 443–77;GregoryBerns,DavidLaibson,and George Loewenstein, “Intertemporal choice: Toward an IntegrativeFramework,” Trends in Cognitive Sciences 11(11): 482–8; Richard Thaler,“Some Empirical Evidence on Dynamic Inconsistency,” Economic Letters 8(1981), 201–7;GeorgeAinslie andN.Haaslma, “HyperbolicDiscounting,” inGeorgeLoewensteinandJonElster,eds.,ChoiceOverTime(NewYork:RussellSageFoundation,1992);GeorgeAinslie,“TheCardinalAnomalies thatLed toBehavioral Economics: Cognitive or Motivational?” (2016),Managerial andDecisionEconomics37:261–73.184. Gilbert, Stumbling on Happiness; See also Timothy Wilson and DanielGilbert, “Affective Forecasting” (2003), Advances in Experimental SocialPsychology 35: 345–41l; Daniel Gilbert and Timothy Wilson, “Prospection:Experiencing the Future,”Science 317, 7 September 2007;DanielGilbert andTimothyWilson,“WhytheBrainTalkstoItself:SourcesofErrorinEmotionalPrediction” (2009), Philosophical Transactions of the Royal Society B:BiologicalSciences364(1521):1335–41.185.Gilbert,StumblingonHappiness.186.KirkWarrenBrownandRichardM.Ryan,“TheBenefitsofBeingPresent:Mindfulness and Its Role in Psychological Well-Being” (2003), Journal ofPersonalityandSocialPsychology84(4):822–48.187.DeciandRyan,“Self-Determination”p.486.188.Haidt,TheHappinessHypothesis,pp.84–6.189.Psychologistsdistinguishbetween“pre-goalattainmentpositiveaffect”and“post-goalpositiveaffect.”190.FriedrichNietzsche,TwilightoftheIdols(Hackett,1997(1889)).191.HalErsner-Hershfield,G.ElliottWimmer,andBrianKnutson,“Savingforthe Future Self: NeuralMeasures of Future Self-Continuity Predict TemporalDiscounting”(2009),SocialCognitiveandAffectiveNeuroscience4(1):85–92.192. Hal Hershfield, “You Make Better Decisions If You ‘See’ Your SeniorSelf,”HarvardBusinessReview,June2013.193. Jean-Louis van Gelder, Hal E. Hershfield, and Loran F. Nordgren,“Vividness of the Future Self Predicts Delinquency” (2013), PsychologicalScience24(6):974–80.Jean-LouisVanGelderetal.,“FriendswithMyFuture

Self: Longitudinal Vividness Intervention Reduces Delinquency” (2015),Criminology53(2):158–79.194.Cf.VanBovenandGilovich,“ToDoorToHave?”;KarimS.Kassametal.,“FutureAnhedoniaandTimeDiscounting”(2008),JournalofExperimentalSocialPsychology 44: 1533–7; JordiQuoidbach andElizabethDunn, “Give ItUp: A Strategy for Combating Hedonic Adaptation” (2013), SocialPsychologicalandPersonalityScience4(5):563–8.On thenegative impactofconvenience,seeTimWu,“TheTyrannyofConvenience,”NewYorkTimes,18February2018.195.DunnandNorton,HappyMoney.196.www.ted.com/talks/dan_gilbert_you_are_always_changing.

TheGeometryofWealth:RecapOurworldofinfinitecontenthascreatedapressingneedforusefulsummaries.Thisbookhascoveredalotofground,sothisbriefsectiontriestodojustthat,atdifferentlevelsofspecificity.

TweetTruewealthisfundedcontentment.Anyonewiththerightmindsetandtherightplancanaffordameaningfullife.

CocktailpartysummaryDoesmoneybuyhappiness?Theanswertothistimelessquestionhingesonthedistinction between being rich and being wealthy. One is the quest for moremoney,theotherisfundedcontentment.Bothmodernneuroscienceandancientphilosophy demonstrate that the quest for more is an unsatisfying treadmill.Meanwhile,theabilitytounderwriteameaningfullifeisachievableforanyonewho combines the right mindset and the right plan. The Geometry of Wealthshows the three steps to doing so, centering on adaptation, prioritization,simplification: Flexibly defining one’s purpose, employing the right strategy,andfocusingon therightdecisions.Threebasicshapes—acircle, triangle,andsquare—simplifythedetailsofthesethreesteps.

Graphicsummary

Section/ChaptersummariesIntroduction:AStoryAboutThreeShapesHowdoesmoneyfigureintoahappylife?Oddly,butaccurately,theansweriscapturedbythreebasicshapes:Acircle,triangle,andsquare.Eachrepresentsastepalongathree-partjourneyfromdefiningone’spurpose,tosettingtherightpriorities, to making the right decisions. Ultimately, wealth is achievable for

many,includingthosewhodespairthatitisoutofreach,butonlyinthecontextofalifeinwhichpurposeandpracticearethoughtfullycalibrated.Inisolation,neitherdeepthoughtsnorlongchecklistsareuptothetask.

TAKINGSHAPE:Thepartwherewesettheframeworkforunderstandinghowtogrowandremainwealthy.

Chapter1:AloneTogether

Money life—earning, spending, saving, and investing—is fraught withcomplexity. It is both intellectually intimidating and emotionally unpleasant.Peopleareconfrontedbythreechallengescurrently.First,thedemiseofclassicpensions and rise of do-it-yourself investing has put an increasing burden onindividualstocontrolmoredimensionsoftheirmoneylives,despitewidespreadfinancial illiteracy. Second, the human brain is hardwired with an array ofcognitive and emotional biases that impede good financial decisions. Third, adimoutlookforlong-termcapitalmarketreturnsandtherapidlychangingnatureof employment suggest that there is less room for error than in previousgenerations.

Chapter2:AdaptiveSimplicity

Humans are extraordinary problem solvers, thanks in no smallmeasure to thetwo-part brain which combines the powers of intuition and reasoning.Highlightingthosepowers,thischapterteesuptherightmindsetforovercomingthe challenges discussed inChapter 1. It articulates the principle of “adaptivesimplicity,”whichservesastheenginethatmovesusalongthepathfromcircleto triangle to square. Embracing adaptive simplicity is essential for achievingwealth, as it combines the right attitude and right plan for success. The goodnewsisthateventhoughourinnatedispositionsandlifecircumstancesweighonthe chances of success, we retain a substantial amount of control over theoutcomes—ifweprepareappropriately.

CIRCLE: The part where we articulate how an adaptive approach todefiningone’spurposeisacriticalstepinconnectingmoneyandhappiness.

Chapter3:ThePlacesYouMightGoAncient and modern thinkers share the same dualistic understanding ofhappiness. On the one hand, experienced happiness considers the day-to-day,evenmoment-by-moment,affectormood.Givenhowthebrainiswired,thisisthe dominant manifestation of human happiness. On the other, reflectivehappiness, or what the ancient Greeks called eudaimonia, engages a broadersenseofwhetheroneislivinga“good”or“meaningful”life.Understandinghowtoshapealifeofmoneyandmeaningisimpossiblewithoutthisdistinction.

Chapter4:WhatMatters

A meaningful life—the stuff of funded contentment—has four touchstones,whichIcallthe“FourC’s.”Thefirstisconnection.Humansaresocialanimalswithanunwaveringneed tobelong.The second iscontrol,which is thedeep-seateddriveforself-determinationandself-definition.Third,competencerefersto the joy associatedwith engaging in ameaningful vocationor craft.Finally,contextistheneedtofindpurposeinlifebeyondone’sself.Thereisnogeneralrecipe for figuring out what each of us should or can attach meaning to.However, theprocessbywhichwenavigate life’s inevitableupsanddowns isshared.Thecirclespeakstothatadaptivedynamic.

Chapter5:Yes,NotReally,ItDependsDoesmoneybuyhappiness?Yesandno.Ourdailymoodislargelyunrelatedtomoneypast a threshold income level, butourquest foreudaimonia appears tobenefitfrommore.Thisanswerreflects threeunderlyingbraindynamics.First,webecomequicklyaccustomedtomostofthecomfortsinourlife.Eachofusisstuck, to some extent, on what psychologists call the “hedonic treadmill.”Second,moneyismoreeffectiveatalleviatingsadnessthanpriminghappiness,which explains why the rich might be less sad but not happier than others.Finally, when allocated wisely, money can underwrite the Four C’s. We can“buy”meaningifwe’repreparedtodoso.

TRIANGLE:Thepartwherewesetprioritiestoorganizeourmoneylives.

Chapter6:SettingPriorities

Crossing from mission to method, from purpose to practice, the triangleestablishes themajorprioritiesfornavigatingourmoneylives.Havingaclear-cuthierarchyofgoalsquicklyallowsustodistinguishmoreimportanttasksandputasidedistractions.Priorityoneistoprotectourselvesfromthepotentialforloss,evencatastrophe.Wewanttomaintaina“lesswrong”mindset.Second,wemapwhatweownandwhatweowe.Bymakingsurethoseareinbalance,ourmoneylifeislikelytobestable.Onceachieved,thefinalpriorityistoengageinmoreaspirationalpursuits,recognizingthatgratitudeandgenerosityareprovensourcesofcontentment.

Chapter7:MakingDecisions

A triangle also illuminates the three factors involved with achieving goodinvestmentoutcomes.Thefirstisourownbehavior,byfarthemostimportantofthethree.Thehumanbrainispronetomakepoorfinancialdecisions,theimpactofwhichcanbevery large.Theclassicexample iswhen themarket tanksandinvestors sell in a panic, locking in losses and then latermissing the rebound.The second factor is the holistic shape of one’s portfolio, best expressed bybeingallocated to theappropriatesegmentsof themarket.Thespecific stocks,bonds,andfundswhichgrabtheeyeandquickenthepulseofinvestorsarethethird,andlessimportant,driversoffinancialsuccess.

SQUARE: The part where we simplify to achieve decent investmentoutcomes.

Chapter8:GrayMatter

In order to transcend certain built-in biases and establish the right decision-making mindset, this chapter tackles two fundamental issues with how weperceive and navigate theworld:Categories and probabilities. The investmentbusinessisalinguisticminefield,filledwithlabelsandjargonthatrarelyclarify.“What is this?” sounds like a basic question, but it’s not, especially withcomplexthingsandideas.Meanwhile,thehumanbrainpreferscertainty,whichcreatesgreatdifficultyfor thinking inprobabilistic terms.Regardless,doingsogivesoneabiglegupinproperlymanagingexpectations.Thereisskillinasking“What are the chances?”While esoteric-sounding, a frankdiscussionof labelsandchancesisessentialtopursueadaptivesimplicity.

Chapter9:FourCorners

The square sets reasonable expectations for the outcomes of your investmentdecisions.Because thehumanmind iswired toavoid lossesmore than it is toachieve gains, the theme here is one ofminimizing regret, versusmaximizingupside.Therearefourprimaryconsiderations.Thefirstisthegrowthwehopetoachieve.Nextistheemotionalpainofachievingthatgrowth.Thethirdelementis how any additional investment fits (or not) with what is already owned.Finally,flexibilityreflectstheabilitytochangeone’smindaboutanyparticulardecision.Thefourcornersofthesquareshoulddrivetheconversationaboutanyinvestmentdecision.

SHAPELESS: The part where we navigate time as a deep source ofenduringwealth.

Chapter10:YouAreHere

Thehumanabilitytothinkthroughtimeviamemoryandimaginationisoneofour species’ most important advantages. While that ability creates enormousopportunity, it also has some less desirable side effects. One of those is thedifficultytofindpresence(beinginthenow,versuslaterorbefore),whichisademonstrablesourceofjoy.Inourmoneylives,thischallengemanifestsitselfintheenduringtensionbetweentwodistinctstatesofmind:Desiringmoreversushavingenough.Bothare legitimateandusefulmotivationsforhumansurvival.Butatanymoment,theyareincompatible.Strikinganongoingbalancebetweenmore and enough—between progress and presence—sits at the deep core ofenjoyingawealthylife.

AcknowledgementsTheexperienceofwritingabookisafunnything.Overtheyearsofscribblingthat go into the final product, there are countless hours of alone time, heads-downgrindingonaprojectyou’reconvincedhalfthetimemakesnosenseandthe other half that no onewill care about anyway.Butwhen you then reflectupon the experience at its culmination, the mind quickly goes in a differentdirectiontowardallthesupportiveandcaringpeoplearoundyou.Indeed,havingnow written a book about the recipe for a good life, I better appreciate theimportanceofothersinevenwhatappearstobeasolopursuitandthejoythatcomesfromexpressinggratitude.Acouplefriendsstandoutashavinggoneaboveandbeyond.JimJessupand

Emma Simon were great partners the entire way, offering advice,encouragement, and a lot of red ink on every draft. I greatly appreciate theirhelp.Likewise,bigthankstoseveralotherswhogenerouslycritiquedtheentiremanuscript:MarlaCommons,CoreyHoffstein,PhilHuber, JakeMcCabe, andChrisSchelling.Many others offered feedback, indulged my ramblings, or were just good

friends along the way. Thank you to Andrew Beer, Christine Benz, Rob andMarianne Bloomberg, Doug Bond, Doug Bottaro, Eliot Bu, Allen Carter, LizChristian, Daniel Crosby, Phil Dunn, Joey Fishman, Tom Franco, JC Gabel,Tom Goldstein, Marc Gould, Joe Green, Lawrence Hamtil, Ben Happ, DougHintlian, Josh Kantrow, John Kenny, Jeff Knupp, Georgie Lowe, MikeMastromarino, Ross Mishkin, Karen Moon, Joe Norton, Chuck Peruchini,BeneenIbrahimPrendiville,GabrielPresler,JoshRogers,BillRukeyser,WayneSafro,JerylSalmond,BobSeawright,TedSeides,NandanShah,AndrewSmith,MikeSmith,LeahSpiro,andJasonWright.Thisbook,andthisstageofmycareer,wouldn’texistwithoutthementorship

of Barry Mandinach. From our first coffee several years ago to our worktogetheratVirtusInvestmentPartners,Barryhasdemonstratedbothakindnesstoothersandatenacityfordoingtherightthingsfortherightpeople.MythankstoGeorgeAylwardandtheleadershipatVirtusforprovidingtheopportunitytowrite and speak about behavioral finance with financial advisors and theirclients,and forcreatinganenvironmentwhere Icouldpursue the ideas in thisbook.The team at Harriman House was as helpful and encouraging as I’d hoped

they’d be. Craig Pearce, Kate Boswell, and Sally Tickner have been great

partners in bringing this book to life. Outside ofHarriman, Fauzia Burke hasbeen a trusted advocate for my writing for years and I thank her. ShannonBelmont designed all of the images in the book. She has been a great partnerwhoindulgedmycountlessrequestsandedits.I’mguessing(hoping?)thisisthelastbookIwriteaboutmoney,soIalsowant

tothankahostofpeoplewhohaveinspiredmeovermycareer,someofwhomI’ve never met and never will. Alphabetically, they are Peter Bernstein, JackBogle,CharleyEllis,DanielKahneman,HowardMarks,JoeMansueto,CharlieMunger, Don Phillips, Carl Richards, and Jason Zweig. Combined, theycomprise my north star in the money management business. My thoughts onadaptivesimplicityhavemostlyderivedfromreadingorobservingthemoverthelast 20 years. I’d also be remiss not sending a “h/t” to financial Twitter, thatgroupofbloggersandpodcasterswhoIgettoengagewith,learnfromdaily,andsometimesjustBSoverbeers.FinTwithasbeenareallycoolexperience.Personally,Iwanttothankmyin-lawsandsister-in-law,DonandJudiBleich

andAmyBleichHeugel,fortheirloveandalotof(nervous)laughsovermanyyears.MysisterCherylhasbeenaninspirationformesincewewerelittlekids,inwaysshe’llneverrealize.ThankstomyMomandDadwho,eachintheirownway,providedencouragementandsupport.Mydeepest gratitude is tomywife and three children.Tracy is as kind and

gracefulapersonI’veeverknown.Sheinspirestometobeabetterman.ThatIget to spendmy dayswith her building a life and a family togetherwith ourwonderfulchildrenBen,Zach,andSarahisablessingforwhichIameternallygrateful.Thefourofthemhavetaughtmethemeaningoftruewealth.