What is your benchmark of success? Money? A nice house? If I told you UK house prices had been falling for ages and a home now costs the same as it did in 1974, you’d think I’d lost my marbles. Both are true if our benchmark is gold (which is up 19% this year by the way). I take this observation from the author Dominic Frisbee who, in his recent Money Week column, reminds us that money does several things:
“Money is a matter of functions four.
A medium, a measure, a standard and a store.”
Although money is an effective means of payment it’s an inconsistent measure of value across time and borders. Worse, it drains wealth because its purchasing power is eroded by government policy. Gold, meanwhile, may fluctuate but it holds true across centuries, millennia even, as a store of wealth. Some people regard Bitcoin, which is highly volatile, as a similar opportunity to escape the wealth draining effects of fiat currencies, and many Bitcoin investors have no intention of ever cashing out because they regard Bitcoin as an alternative for money on all counts (medium, measure, standard, store).
Health is wealth. Time is too: time with your partner, children, and time to yourself for reflection and introspection. A question you could ask yourself is: what is most valuable to me? If I am working hard, why do it? How much money is enough? Am I using it as a leaky store of wealth just because I haven’t really thought about it? Or worse, am I trading too much of my time for money that I don’t care about?
What, ultimately, is the point of doing what we habitually do? Probably, in large part, it enables us to conform and feel OK. Take, for example, the behaviour of goalkeepers. A study of football penalties published in the Journal of Economic Psychology in 2007 found that goalies had more than twice the chance of saving penalties if they stayed in the centre of the goal, yet they dived right or left 93.7% of the time.
Psychologists call this action bias: we feel OK about failing as long as we’ve tried to “do something”, even when doing nothing would have been more effective. Think about how normal this is. How far do we strive to buy a bigger house, run a bigger business, or earn more money for the sake of knowing that at least we tried to be ‘successful’, even if the economy slumps and we lose everything, or our marriage breaks down due to stress and neglect?
We all feel considerable pressure to conform. Humans are a social species and in our evolutionary past social death was akin to biological death. It was difficult to survive in isolation before the advent of modern technology, so the impulse to conform was hardwired into us. Fund managers display this in the way they imitate each other’s portfolios so that should they fail, at least they’re not alone.
Perhaps, rather than owning a dental practice, you’d rather build an investment portfolio with your income. If you are earning more as an associate, must you spend more? Maybe in lockdown you noticed, like I did, how well you can live on how little money, taking more time to cook, enjoying BBQs and the fresh air, and spending less time in the car. Would you like to take these qualities into your new life permanently?
Anyone who lives in the countryside or near the ocean will have realised how priceless nature feels when we have the time to appreciate it, especially given the thought of being pent up in a city during lockdown. Similarly, many people have been using unexpected extra free time at home to practice meditation and yoga, which are also free. A modest shift in perspective can reveal some alternative strategies that were in plain sight but didn’t seem obvious before. We always look to do this with our wealth management clients.
