I was meeting with a prospective client recently and an image shot across my brain. The image was of this educated, successful couple indulging in a breakfast that consisted entirely of M&M’s. These sweet concoctions represented the elusive ever higher investment returns they were seeking. Of course, everyone knows that eating M&M’s for breakfast might taste good today but bring about problems tomorrow.

Our philosophy of aligning investment risk with concrete financial planning goals is akin to recommending a well-balanced diet. That might seem somewhat unappealing in the land of sugar and sweetness. But that’s our mission, to provide objective truth in a financial world of make believe even when the message isn’t well received.

The Dopamine Effect

There is a strong correlation between the attraction to sugar and the incessant desire for higher investment returns. Each of these render a certain amount of fulfillment, both emotionally and physiologically. Sugar provides an intense injection of the neurotransmitter dopamine into our bloodstream. The pleasure associated with higher investment returns also creates a dopamine response. Through the reward system in our brain we are motivated to seek this response over and over again.

It turns out that addiction to sugar isn’t biological, but the long-term consumption of sugar alters the brain chemistry and distorts reality. On the financial side, the momentary pleasure from an unexpected investment success has the same outcome and hooks your brain on wanting this to happen again.

The Fulfillment Curve

Yes, your body, your brain, and your financial life are indeed connected. Food has a purpose (fuel) and money has a purpose (purchasing power). We can easily get off track if we forget that. The chart below currently is on our conference room flipboard. This is an adaptation of a concept in Vicki Robin’s book, Your Money or Your Life.

The Fulfillment Curve depicts the two primary aspects of money- how much we spend and how much happiness or fulfillment these expenditures create. The apex of the curve shows us where we have “Enough” – money beyond which only clutter, complexity, and hassle ensue.

How Much is Enough?

Interestingly, having enough food and enough money are equally foreign concepts to many folks. We call “Enough” the Repository of Wealth. That’s the point where you can reasonably expect to sustain your existing lifestyle in real terms, (adjusted for living cost increases), for the remainder of your life. Some investors will reach that plateau and many will not.

Ironically, a major cause of investors failing to reach the Repository of Wealth level is ignoring their long-term reason for investing by constantly taking on more risk and chasing higher returns. The outcome predictably is that these investors generally achieve lower returns.

You can’t out-exercise your diet and you can’t invest your way out of overspending/undersaving. Remember the purpose for both and you are well on your way. Start there. Ready for a real conversation?


What I’m Reading:

Being Mortal by Dr. Atul Gawande- An excellent book on illness, dying, and medicine from the perspective of a surgeon. Dr. Gawande weaves stories about our current medical system that is focused mostly on “fixing” things with procedures and drugs. Thought provoking and provides a different framework for end of life medical care.

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