The paradox of hedonism refers to the practical difficulties one might have while pursuing happiness and pleasure; the concept that if you are consciously chasing happiness, it becomes harder to find and maintain as other things get in the way.
Often, becoming hyper-focused on financial success can create similar issues.
Chasing popular stocks in the share market because you want only high-value, hyped-up stocks is not likely to offer you the greatest yield over time. Perhaps lucky individuals (and I stress that it would be luck, not skill) might make short-term gains, but overall, the pursuit would likely have more barriers than benefits… Not to mention, you would likely be under enormous stress.
If you are taking a reactive approach to your investments, you are acting on outdated information as markets move quicker than reports do. Past performance can never be relied upon for future gains… just ask anyone who invested in A2 milk, or any of the other ‘hot’ stocks you would find being discussed on various social media forums.
What the hedonistic paradox teaches us is that pursuing happiness alone is a self-defeating notion. It is best acquired in pursuit of other things, such as meaningful activities and relationships. A holistic view of financial planning tells us the same; while wealth accumulation is undoubtedly part of it, it cannot be the only area of focus.
1.) Think ‘outcomes’ over ‘amounts’
When you are planning your financial future, it can be tempting to use a dollar amount as your only measure of success. When you do this, you don’t leave a lot of room for those practical difficulties... and you leave a lot of room for dissatisfaction should you not reach that number when you think you ought to.
For example, saving for retirement does require some drill-down of your costs now and the costs you will have once you stop working. But if you spend all your life focused only on accumulation, and no time on building lasting social relationships or happiness outside of employment, you may find it difficult to switch into the third age (retirement).
The goal for most is to live a happy, stress-free life once retired. Instead of just picking a big shiny number, consider seriously the day-to-day reality of a lifestyle that would make you happy – then create and adjust your financial goals to support this outcome over time.
2.) Like a watched pot…
Do you watch water boil, or do you wander to other tasks and come back to check occasionally?
Some investors will prefer to keep a close watch on their portfolios. While it is important to check in regularly, you don’t need to be doing this every day (or every month, even). A good fiduciary will do the legwork for you to make sure your strategy is always best suited to your goals, timeframe, and lifestyle – so you can pursue other things to enrich your life, like quality time with family and friends.
Much like the water in a pot, good investing is boring and takes a while to reach the desired point. Your valuable time is best spent on other things while your money works hard for you over time. Reviews once or twice a year to make sure you are on track, and your plan is still suitable for your needs, are usually sufficient when you’re in it for the long haul.
3.) Small actions, big effect
You do not need to go in the deep end with both feet from day one. Using a holistic view means taking into account many different areas where small change can have big impact down the line.
Think regular contributions to KiwiSaver or a similar low-contribution PIE scheme, or into a custom portfolio of assets. Think what insurances will benefit you (or your family) in the event of job/income loss, significant health events, property damage, or loss of life in the worst-case scenario. It can feel pointless to spend on policies when all is going well, but when you need them – it’s a lot better than having to draw from precious savings or liquidating assets.
The pursuit of happiness and the pursuit of financial freedom are not mutually exclusive; financial stress can be an extremely heavy burden to bear, as many will know all too well in these current times. Their true commonality is that both are difficult to achieve in isolation; with a little help from friends, happiness becomes easier to find. With a little help from a trusted local fiduciary, your financial future can be similarly demystified.
by Nick Stewart (CEO and Financial Adviser at Stewart Group)
· Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 323.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
