Stock prices continued to climb in the third quarter, building on the recovery that began in April. The so-called “tariff tantrum” earlier this year resulted in U.S. stocks shedding nearly 20% of their market values. Since then, stock prices have been on a steady march higher. Year-to-date through the third quarter, U.S. stocks have returned more than 10%. Non-U.S. stocks have been the star performer this year with a return of nearly 30%. Bonds, which have a lower expected return than stocks, have produced respectable mid-single-digit returns.
Spending It
I want to bring to your attention a thought-provoking book I read this summer. The book, written by Bill Perkins, is titled “Die With Zero.” As you can probably tell by the title, this is not your typical personal finance book. Thousands of books and papers have focused on how to build wealth. Far fewer are dedicated to the topic of what to do with it.
Clients of ours had mentioned this book and found it impactful. The topic resonates with us because of a common observation we have. On average, we’ve found our clients are more likely to underspend their resources rather than risk spending too much.
I want to summarize some of the main points of the book, hopefully without giving away too much, should you choose to read it. The author contends that your life is the sum of your experiences, so you should try to maximize your positive life experiences, not your wealth. Since not all experiences in life are as enjoyable or even possible at certain ages, you should prioritize these experiences at the proper times, even if they take away from future wealth accumulation. An example would be to travel in your 60s versus traveling in your 80s. Perkins also writes about knowing when to stop working, giving money to loved ones earlier, and making plans for the experiences you want to have in different stages of your life.
The element of the book I like the most is the intentionality and clarity it forces. For instance, Perkins addresses a common counter argument to his thesis that he calls “what about the kids?”. Suppose you want to live well from your investments and pass along your wealth to your children. But how much do you want to leave to your children? Is it really your goal to provide that inheritance amount? Would you be willing to fund a trust with that amount right now? Or is some other preference, objective, or emotion causing you to want to retain and grow your portfolio rather than allocate more of it to the life experiences you want to have?
My main critique of the book has to do with the complex psychological issues potentially standing in the way of implementing the author’s advice. For instance, it is possible that some individuals derive greater utility from the security that comes from not consuming wealth than from embarking on the next great life experience. These individuals may not later regret that trade-off. When the author discusses how one might carry out a plan to “die with zero,” he offers an income annuity as a solution. He is not wrong from an economic perspective. However, income annuities are less popular in practice because, as it turns out, people do not like exchanging their wealth for a stream of cash flows. They feel less wealthy. In other words, a gap exists between how people should think about money and how they do think about money. Welcome to the world of behavioral finance!
Still, I see this genre of books as a step in the right direction. We find we are encouraging clients to spend more, do more, think bigger, etc. What better time than now? The last three years have been very friendly to investors. When we ask clients what the increase in their net worth may mean for their plans, the most common answer is “nothing.” That’s okay, but now may be an opportunity to consider an experience you’d like to have or a lifestyle improvement that would be meaningful. If the price tag is large, let us help you analyze the decision.
If you wind up reading the book and are willing to share your thoughts, we’d love to hear from you.
