|Publisher:||New World Library|
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By Jonathan K. Deyoe
New World LibraryCopyright © 2017 Jonathan K. DeYoe
All rights reserved.
The Illusion Factory
What's money? A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do.
— Bob Dylan
We live in a world of illusion, and these illusions keep us from our happiness — especially around money.
Money drives our world. We organize our whole lives around it: earning it, worrying about it, spending it. Yet many of us are taught next to nothing about it. The whole point of Buddhism, and all forms of mindfulness, is to deal with what is, to look reality straight in the eye. To sit with it, breathe it in, hold its hand. To "wipe the dust from the mirror," as the Buddhist saying goes. When it comes to money, most of us rarely, if ever, deal openly with what is. We spend our entire lives chasing fantasies or running from our fears. Money is the eight-million-pound gorilla sitting in the middle of the town square. We bow to it, serve it, fear it, beg for its blessings, but we don't discuss it. We behave as if money is our god, and we avert our eyes in deference.
In elementary school, we learn a thing or two about currency. We're taught how to make change from a five and how to figure sales tax and tips. In middle school or high school, perhaps we take a home economics course that shows us how to balance a checkbook and manage an online bank account. Lesson complete. Whew.
We don't learn the simplest truths about money itself — such as its nature and how it grows. In fact, many people are actively discouraged from learning. We are taught that money is private. It's rude to bring it up. Casual questions from a child, like "How much did that cost?" and "How much do you earn?" are met with admonishments, as if the child had just asked, "Why are you so fat?"
Most adults treat money as a private topic, one they are uncomfortable discussing, and children learn that discomfort, not the reasons for it. They are left to piece together the "truth" for themselves. They shuffle past the giant gorilla every day and create their own mythology about it. These myths are based largely on emotion rather than knowledge.
It doesn't have to be that way. I was extremely fortunate as a child. My economics education started early. Conversation at my family's dinner table was different from that at my friends' tables. We talked about finances. We talked about taxes and investments. We talked openly about how much money my dad and mom made. It wasn't a lot! We talked about how much this pair of sneakers cost versus that pair of sneakers, and the relative merits of each. We understood limitations and trade-offs. My parents walked me through their tax returns when I was nine. I bought my first stock that year, too. I was exposed to the simple what is of money, not the fears and secrecy. It's no accident that today I find money fascinating and fun.
Many people are not so lucky. They absorb only illusions about money put forth by three main sources: family members, culture and media, and Wall Street.
All of us grow up absorbing our parents' relationship with and feelings about money. Most of this learning is observational, not formal. Perhaps we learn, for example, to be afraid of talking about money because money makes people fight. Or that money causes anxiety. Or that earning a lot of money is a game we must try to win. We learn these beliefs before we know we're learning. That's what makes them so difficult to untangle later on.
When we are formally taught about money within our families, these lessons are usually colored by beliefs inherited from our grandparents or great-grandparents.
Many of these beliefs about money are rooted in simple pleasure and pain, in attraction and aversion. The Buddha observed that life is suffering. That is, life inevitably confronts us with pain and discomfort. When it does, we often react reflexively to try to remove the causes of pain and increase the sources of pleasure. Neither of these solutions are lasting, however, and so our efforts end up generating more pain in the long run. Out of this endless cycle, suffering is born.
Human beings are even more motivated to avoid pain than to pursue pleasure. This means most of the so-called truths we live by and pass on to our children are based on pain avoidance. Pain avoidance is a very primitive, reflexive way of living. It does not look at the big picture or the long term.
For example, when it comes to money, many people inherit a fear or distrust of "the stock market." Where does this fear come from?
It may come from the Great Depression. It may come from the late1990s dot-com collapse. It may come from the Great Recession of 2008. Yes, the stock market is volatile and frequently experiences losses, occasionally huge losses. But as the Buddha also observed, the nature of life is impermanence, which is why another thing we can reliably say about the stock market is that over time it grows. The stock market bounced back from each of those historic crashes, and in fact, it has recovered from thirteen major dunks of 20 percent or more since the end of World War II. The market will continue to grow as long as there are people in the world who seek to improve their lives. That's the investable thesis, in my opinion. Everything else is just smoke and mirrors.
When we buy into illusions like "stocks are too risky," we may succeed in avoiding the heartache of short-term loss, but we will invest our money in a way that cannot possibly keep up with the rising cost of living. The real danger isn't losing money in the stock market. The real danger is outliving our money because we failed to grow it sufficiently to keep pace with inflation.
This is just one example of how harmful money illusions passed on to us in our families can create negative outcomes.
Cultural and Media-Driven Illusions
Our culture's all-time favorite illusion is that consumption leads to happiness. This illusion has always had its devotees, but today's omnipresent media grinds the message into us so relentlessly that many of us never think to question it. We are conditioned, from cradle to grave, to consume.
I remember my son discovering catalogs when he was only six. One day he said, "Dad, let's sit down and read this together."
I said, "There are no good stories in there."
"No, but I want to show you what I want," he said.
So it begins.
A certain level of material comfort makes life pleasant and relieves anxiety, but once we've achieved that basic level, more stuff doesn't make us happier. Nonetheless, one very healthy growth industry in America today is self-storage facilities. We own so much stuff we can't fit it in our houses.
Nicer stuff doesn't make us happier, either. Upgrading our car's grille emblem to a pricier one gives us maybe a fifteen-minute buzz of pleasure. After that burst, our happiness resets to its default level. A thousand-dollar watch might be one or two seconds per year more accurate than a seventy-nine-dollar watch. How much value do those two seconds add to our life?
Even if we're cynical about the claims of advertising, we can easily fall prey to the illusion that the popular media is a reliable source of truth and information. It isn't. Sometimes the financial media genuinely tries to inform us, but it is always trying to captureour attention and keep it captive. It does so on behalf of its advertisers, who are always selling something. At the same time, the media is also always selling something else: itself. And besides sex, the most reliable way to get the public's attention is fear. Most media stories about economic matters are intended to scare us — note the tense background music and flashing graphics to keep us clicking the mouse to learn more.
The one-hour Flash Crash of 2010 is a good example. On May 6, 2010, the stock market experienced a nearly thousand-point drop. One blue-chip stock, Procter & Gamble, went from sixty to forty dollars in thirty seconds. Why? A once-popular theory was that some trader with a "fat finger" accidentally pushed the wrong button, but this has been discredited. Instead, the reason for the mayhem is now considered to be a young guy deliberately manipulating market vulnerabilities out of a bedroom in his parent's house in London. But when it happened, no one knew what was causing the drop, and the media picked up the story and ran with it. People panicked because the media covered it the same way it covers everything in finance: like it was the end of the world. The markets are in freefall right now? Panic! Y2K? Panic! Brexit? Panic! The Federal Reserve may hike interest rates? Panic!
Bad news = good copy, but the media's pursuit of ratings gains can unfortunately drive short-term market movements. Anyone with a teaspoon of common sense knows that nothing can make an established company like Procter & Gamble lose a third of its value in half a minute. There was obviously a mistake. The stock market had to bounce back, and in this case, it recovered almost entirely by the end of that same day. But that's not the tack the media took. Dire tones were employed. Average people who owned pretty much any blue-chip stock wanted out after hearing the latest, breaking news. Those who actually did get out regretted it an hour later.
The market responds to our faith in its resilience. Fear undermines that faith, so by selling fear the media retards recovery. As for me, I take the simple route. I reject daily freneticism. I trust that even big issues will resolve themselves in good time. I choose to believe that the market will improve. I don't know how or when it will happen, but when I'm doing long-term income planning, that's all I need to know. Thus far in history, panicking out of the market has never worked. Not once.
The media doesn't only sell fear. It also sells excitement and trendiness. That is how stocks can skyrocket to crazy-high levels virtually overnight. As Warren Buffett famously said at a recent shareholders meeting, "The market is a psychotic drunk." The media, it seems, is its drinking buddy.
I came into the financial management business almost twenty years ago, and I can't remember a single time when the media's hyperbolic approach has helped the everyday investor.
Fear shuts down our higher thought processes and puts the primitive "lizard brain" in charge. The lizard brain is all about survival and attacking immediate threats. It does not possess long-term perspective or use thoughtful analysis.
When the media sells us fear, we don't have to buy it.
Wall Street Illusions
When we do buy in, Wall Street proceeds to take that fear and run with it to the bank by selling us investment products designed to salve our fears. Even when the economic news is bullishly enthusiastic, fear still does the selling: the fear of missing out on a hot market trend. Wall Street spins out newfangled mutual funds and complicated exchange-traded funds every year, not because these edgy new investment products are truly beneficial, but because it knows we're too afraid not to buy them.
In 2000, at the peak of the market, there were more growth-oriented mutual funds than ever in history. In 2009, after the big market meltdown, we saw the rise of so-called tactical allocation funds. These funds helped allay the fears of investors who were afraid of going down with the stock market ship if it tanked again. Interestingly enough, these new funds have underperformed more traditionally managed funds since they began proliferating. That doesn't mean they're bad products, but they were sold at a time when people were predisposed to buy them because marketers pandered to their fears.
The same thing happens when the market is hot. People are encouraged to buy out of emotion. This is how bubbles are created. In 1999, Wall Street urged people to flock to dot-com stocks. Then the bubble burst. Over the last few years, fixed-income products have become the rage. A few years ago, it was real estate. Another time it was oil.
Wall Street plays us something like this: The market falls. The client is afraid. Wall Street sells the client products that won't fall anymore. But they won't go up, either. Then the market goes up. The client, whose products won't go up, is upset about missing out. So Wall Street offers products that will go up, but the client doesn't buy those products until after the market has already gone up. By that time, the market goes down again, the client becomes afraid, and the cycle continues until the client is broke. Wall Street gets paid on every transaction, so its incentive is to keep the client buying something and to keep the money moving. The public suffers on both ends, and as an added bonus, they pay Wall Street to create the next product to sell. Loss for the average investor is turned into opportunity for Wall Street.
The point is not whether any particular financial product is good or bad. It's that the client doesn't usually know what he or she wants or needs. Wall Street is aware of this and relies on emotion to entice clients into choosing products. Wall Street knows that people are hard-wired to run away from pain and run toward pleasure. On that basis, new products are focus-grouped to determine, "Will this sell today?" rather than, "Is this good for our investors' long-term portfolios?"
All the tailored suits, the sophisticated financial jargon, and the oil paintings of hunting dogs conspire to create the illusion that staid and responsible money managers are taking care of their clients. But in many cases people are being taken advantage of.
Of course, Wall Street professionals aren't inherently evil. Many are sincere and well-meaning. Few intend to cheat customers, but when a client walks in the door looking for "safety" or "higher returns," they will sell the client what he or she wants without necessarily knowing what that person needs. They are salespeople in the business of selling financial products, just like car manufacturers or restaurateurs sell their products. People, in turn, have to be wise and thoughtful shoppers. We need to develop a simple financial plan and stick to it, rather than gobbling up every new product that Wall Street creates to satisfy shifting public appetites.
To understand money's true role, we need to empty our cups of all the nonsense and misinformation we've been fed in our lives. Before we can approach money sanely and mindfully, we must break free from the illusions that have hypnotized us since childhood.CHAPTER 2
Illusion 1:We Can Go with the Flow and Still Achieve Happiness
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.
— Ayn Rand
The reason our illusions are so powerful is that we don't consciously recognize them as illusions. We don't even know we've taken them onboard. Adults who are relentlessly conscientious about which refrigerator or phone plan to buy can still somehow adopt passive, magical beliefs about money and how money relates to their major life goals.
One of the most prevalent and harmful illusions is silent but deadly. We unwittingly allow popular culture to define happiness and our financial goals for us. I call this the "gateway" illusion because, like a "gateway drug," it opens the door to so many others. If we don't know, clearly and distinctly, what we want for ourselves, others will be more than happy to tell us and sell us on their visions for our lives.
If we planned to build our dream house or write a book, few of us would borrow someone else's ideas and hope that the project turned out as we wished. But when it comes to our biggest life decisions, we often passively "go with the flow" of society's default choices. Many of my clients have a difficult time answering the most basic questions about their personal goals during their first financial planning interview. I ask them questions like these:
When would you like to retire?
How do you want to live in retirement?
Do you want to work at one career your whole life or would you like to transition to something different? If you'd like to transition, when?
What are the big values that inform your life?
Do you want to be able to take care of your parents when they are elderly?
How much financial help do you want to give your children?
What kind of legacy do you want to create and leave behind?
The truth is that happiness is specific, not generic. If we want specific things out of life, we must actively choose them, plan for them, and allocate personal and financial resources toward them. Things don't just "happen." They must be intentionally worked toward.
Excerpted from Mindful Money by Jonathan K. Deyoe. Copyright © 2017 Jonathan K. DeYoe. Excerpted by permission of New World Library.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Foreword Alice Walker xiii
Section 1 Unmasking the Illusions
Chapter 1 The illusion Factory 7
Chapter 2 Illusion 1: We Can Go with the Flow and Still Achieve Happiness 17
Chapter 3 Illusion 2: We Can Get There from Here without a Financial Plan 23
Chapter 4 Illusion 3: Money Gurus Have a "Secret Sauce" 33
Chapter 5 Illusion 4: We Can Get Rich Quick it' We Spot the Opportunities 41
Chapter 6 Illusion 5: Volatility = Risk 49
Chapter 7 Illusion 6: Market Timing & Stock Selection Are the Keys to Success 59
Chapter 8 Illusion 7: Investing = Speculating or Speculating = Investing 65
Chapter 9 Illusion 8: There's Plenty of Time to Plan for Retirement 75
Section 2 Finding Your Happiness
Chapter 10 Happiness Is Not a Mystery 87
Chapter 11 Happiness Pillar 1: Health 93
Chapter 12 Happiness Pillar 2: Engagement 101
Chapter 13 Happiness Pillar 3: Relationships 109
Chapter 14 Happiness Pillar 4: Meaning 119
Chapter 15 Happiness Pillar 5: Accountability 127
Chapter 16 Happiness Pillar 6: Generosity 137
Chapter 17 Happiness Pillar 7: Optimism 145
Chapter 18 Happiness Pillar 8: Gratitude 155
Section 3 Making a Plan
Chapter 19 Human Out, Human In 165
Chapter 20 Step 1: Develop Your Vision 173
Chapter 21 Step 2: Start the Saving Habit 191
Chapter 22 Step 3: Build an Emergency Fund 203
Chapter 23 Step 4: Eliminate High-Interest Debt 211
Chapter 24 Step 5: Begin Investing for Retirement 219
Chapter 25 Steps 6, 7, and 8: Climb to the Next Level 231
Chapter 26 Three Simple Investment Practices 243
Conclusion: A Wider View 251
Appendix: Your Financial Action Plan 255
About the Author 285
What People are Saying About This
“DeYoe pierces common money illusions and focuses readers on the elements that underpin true happiness.” Tadas Viskanta, founder and editor of Abnormal Returns“Mindful Money, a book grounded in a belief system that is deeply compatible with my own spirit, teaches the lessons I have been waiting for.” from the foreword by Alice Walker, Pulitzer Prize-winning author of The Color Purple“Mindful Money provides a commonsense and inspirational framework that serves as a road map to happiness and offers a thoughtful reassessment of how money is just a tool, not the destination.” Burt White, managing director and chief investment officer of LPL Financial“If there were a smarter and better way to manage your money and your life, you’d want to know right away. So open this book and start reading.” Bob Seawright, chief investment officer of Madison Avenue Securities and blogger, Above the Market“Teaches you to put wealth-building ideas into action. . . . If you read one money book this year, let it be Mindful Money.” Barbara A. Friedberg, MBA, MS, expert investor and author of Invest and Beat the Pros“[DeYoe’s] advice is solid, his delivery is assured, and his claim of discovering the key to happiness is surprisingly plausible.” Publishers Weekly