In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 39: Enough.
LEARNING: More wealth does not give you more happiness.
“Prudent investors don’t take more risk than they have the ability, willingness, or need to take. If you’ve already won the game, why are you still playing?”
Larry Swedroe
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over 30 years as the head of financial and economic research at Buckingham Wealth Partners to help investors. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.
Larry deeply understands the world of academic research and investing, especially risk. Today, Andrew and Larry discuss Chapter 39: Enough.
Chapter 39: Enough
In Chapter 39, Larry discusses the importance of knowing that you have “enough,” a concept that, once understood, can enlighten and guide your financial decisions.
In 2009, Larry conducted an investment seminar for the Tiger 21 Group, America’s most exclusive wealth management group. One of the issues the group asked him to address was: How do the wealthy think about risk, and how should they approach it? Larry’s answer exposed a terrifying paradox.
More wealth will not make you happier
According to Larry, self-made wealth follows a predictable script. Fortunes are built through extreme risk-taking: betting everything on one business, ignoring diversification, and trusting instinct over analysis. This breeds a dangerous confidence—the kind that whispers, “If I did it once, I can do it again.”
He explains that the utility of the wealth curve resembles an elephant from the side. It goes up quickly because when you have nothing, even a little extra money can significantly improve your life. If you’re homeless and someone gives you $25 to take a shower, get a meal, and stuff, that will make you much better off. But once you get to some level of net worth, like $2 million or $3 million, or whatever the number is for you, the extra wealth is better than less.
However, as you gain more wealth, your incremental level of happiness—just like the elephant’s back— flattens out. There’s virtually little or no improvement in your state of well-being and happiness.
The entrepreneur’s invisible trap
Larry stresses that wealth building and wealth preservation demand opposite mindsets. Those with the greatest ability to take risks (resources to absorb losses) and willingness (confidence from past wins) often overlook the third critical factor: need. And therein lies the trap.
The wealthiest individuals have a near-zero need for further risk. Yet, they continually strive for more and take on significant risks that may not ultimately lead to an enhanced level of happiness. In reality, they do not need to take such a substantial risk. They can dial down the risk in their portfolio and be much happier, sleep better, not worry about markets, and enjoy their life.
When $13 million evaporates
Larry recounts meeting a couple in 2003. Three years earlier, their portfolio stood at $13 million, with...
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