Hear me out.
I know what you are thinking. I thought the same thing.
How could you say experiences are less worthy than a boring box of cereal or a meaningless TV?
Hold your horses. Be careful what you take for granted.
Keep in mind the difference between pleasures and tools.
One is remembered and a nice memory and the other can actually assist you on a daily basis.
One is not better than the other. We all need both to thrive and enjoy our existence but materials have gotten a bad rap lately in this zero-emission COP26 pledge world. We still need toilet paper!
Everything is relative in finance.
An emotional investor would view a correction, a 10% or more price decline as a threat and panic sell.
A prudent long-term passive investor sees it as an attractive tax-efficient tax harvesting buying opportunity to seize the day.
Buying the dip and taking advantage of holdings that were once deemed expensive and are now relatively priced and inexpensive is an attractive move as long as they shoot back up which is expected overtime.
The markets havenât reached these low levels since 2020 when the S&P500 had a 35% decline from Feb to March. 2022 is going to be a bumpy year for obvious reasons related to the Fedâs hawkish measures and the stock market has been on a rollercoaster ride ever since January. Most of the major indexes, predominantly the Nasdaq-100 endured a tech heavy sell off down over 20% since its peak in November and other volatile assets such as cryptocurrency and meme stocks were down more than 30% a few days ago since itâs high last May. We cannot forget about the platform that made it all possible and popular, Robinhood, down 80% since its IPO.
In the grand scheme of things, becoming an emotional investor is a dangerous recipe. When it comes to investing, the rule of thumb is this:
If you arenât willing to invest for more than 5 years, the tax implications, expense ratios, and headaches arenât worth it.
The worst mistake you can make now is exit this correction, when prices are down more than 10%. Itâs like refusing to take advantage of a sale at your favorite store when you were planning on purchasing something prior to anyways. Markets are jittery and dealing with uncertainty. Hopefully the FOMCâs 2-day meeting will calm down markets with their announcement of the first rate hike in March. Inflation has been spurred by easy money policies by the Fed and they now need to reverse course and tame inflation to combat supply chain constraints and frothy corporate earnings to get to real realistic levels that make sense.
When you consider 2021âs colossal gains with the stock market trading at ~23x corporate earnings with record corporate profit and earnings estimates, recent losses havenât fallen all that much compared to how far weâve come. ~28% plus dividends isnât too shabby for a return given the stock market rode a 3 year above average ride. Although alarming, inflation, corrections, and pullbacks indicate the economy is in fact healthy. 95% of corrections only result in 5% or more in declines.
Although higher rates may spook bond markets, higher mortgage rates are easier for cashed up buyers and rule out margin buyers. 08 is far in the distance. There is a lower chance for default, bankruptcy, and or foreclosure with stricter lending measures and checks in place, especially as rates climb. Higher rates are also a convenience for sellers, the toughest part of the home process since there are less competing offers and shorter closing/wait times with more certain homebuyers on the market. Although GDP growth is estimated to be around 4% and European and Asian equities are expected to outperform U.S. equities this year with flat to negative estimations for the markets, there is still real hope on the horizonâââaccording to Fauci.
Currently, markets are a bit shaky digesting inflationary fears, rising interest rates, geopolitical tensions between Russia invading Ukraine, and tax hikes in the coming year yet if weâve learned anything from these past 2 years, itâs that the markets always come back with vengeance and can easily beat expectations even during a deadly pandemic. The economy should be correlated to the market and it is in some respects, but often times, it is on its own. On Monday, 1/24, it was the first time the Dow was down 1k points then within a few minutes before the trading day closed, it went through an epic comeback, drawing inspiration form the playoff games this past weekend closing in the green.
Volatility is expected short-term. Long-term itâs a smoother ride especially when our spending is on track. Letâs see what that entails below.
The Case of Loving Goods
Thereâs nothing wrong with fantasizing about a new Range Rover or Rolex. We are a consumeristic consumption driven economy and we will forever want what we donât have since the Joneses across the street and Murdochs of Cable News convince us to buy what we donât need with money we donât have to impress people we donât like.
Thatâs part of life and why the average American ends up spending 4+ hours, one third of their waking hours on their phone per day aimlessly scrolling personalized advertised content to their screen, confirming their biases creating an echo chamber.
It sounds worse than it should be but behind the screen, our psychology and emotions are programmed without even controlling us.
Welcome to the 21st century where weâve lost control over our emotions, decision making, and instead technology knows more about us than ourselves.
Although purchasing materialistic goods doesnât sound as pleasurable and memorable as experiences, they are still important. We cannot deny the power of the iPhone, the greatest innovation of all time, AirPods, in second place that could branch off into its own company and still be considered a large-cap, our Pelotons to streaming services and of course, our sanctuaries: vehicles that keep us alive and physically and mentally going in some respects.
Without these tools, it would be more difficult to generate cash flow and make a living for ourselves. Without investing, it would be impossible to rise the income ladder. After all, the point of making money is to spend and enjoy it which can and should be done with tangibles as well. Between experiences and items, a stricter acquisition limit must be met with items since they can get out of hand. With experiences, the saying, âless is moreâ rings true but can be stretched a bit more.
The products we consume arenât as expensive as ourselves since our tastes constantly change and we are never satisfied. No matter what we buy, thereâs always the latest gadget, upgrade, and new invention coming our way the next day. Whenever I find myself needing a laptop on hand when it randomly breaks every 2 years, right after I purchase a brand new one, there seems to be a new model that comes out a few days after or the next day! Does this just happen to me or what? I guess I didnât get Appleâs memo that fall is their prime season.
Anyway, thereâs no doubt we need products. We accumulate too much but we seem to always have a purpose for everything, or so we thought. Buying goods is pleasurable, especially adding them to online shopping carts that never get full or require any exercise routine of pushing around. They sit in the corner and bug us until we order something. Itâs like a mind game with a timer. The power of buying is freeing and the American consumer is relentless. Although retail sales slumped during the holidays and missed expectations, they soared once vaccinations rolled out. For the good half of 2020 and 2021, our form of entertainment locked in doors was retail trading, which builds upon a cult like social movement following that feel invisible and defensible.
Prior to the pandemic, since we couldnât watch a movie at AMC, order a video game from GameStop or rent a car from Hertz since they were either on the verge of bankruptcy or physically closed or crushed by online retailers, novice traders, predominantly Gen Zers and Millennials got their first taste of investing, which happened to be the most dangerous, speculative, least efficient, and disastrous way of making money but hey, at least they spent more time playing around with money than playing Roblox or Fortnight right?
Maybe not but my point is, there are many useful benefits of tangibles that arenât so tangible such as a trading account on Robinhood or a subscription service that may provide more benefit to you in the long-run than an experience on a financial basis.
Past a certain income, $75k, once your basic needs of security and comfort are met and you are living a decently healthy quality of life, happiness starts to plateau since you are more reliant on money filling a void or solving a problem than doing anything yourself. If you want a truthful example from the elites of how money really messes with your head, watch the Disney documentary directed by Disneyâs grandchild revealing how her family and the chief executives and top management running the company earned eight to nine figures in compensation plus millions in tied up stock options while theme park employees earned minimum wage, $15 per hour and had to decide between paying for meds or living in their car or food.
The Disney family was as corrupt mortally and physically as the fictitious, Roy family dynasty from the TV show, Successionâââan elite family who battles over the successor for Waystar Roycoâs CEO position as the founder father becomes incapable of holding the position. Throughout this series, you get dangerous glimpse into the familyâs troubled lives with too much money, fame, and affluence. Beneath it all is mental illness, suicide, depression, alcoholism, bigotry, hatred, and drug abuse. Iâm not one to watch TV, a materialistic item I tend to avoid due to eye strain and the paradox of choice yet Succession caught my eye as portraying a vital message about how money can really distort and kill you. Too much of anything is a bad thing.
How can money really do this and will certain purchases change it?
Problems mimic the load of possessions, materialistic items, luxuries, and stuff. It collects, gets dusty, needs fixing, and attempts to distract the buyer.
One of the most powerful truths about life is that no matter how you change your external environment, if your internal self isnât in check and a priority, you will never feel truly fulfilled and purposeful. Hard to believe until you get to this stage. The first priority in life is your mental and physical health. Too much money sidetracks you from whatâs important and the basics of life. Poor people are as happy, or oftentimes as weâve seen, much happier than the wealthy simply because they are grateful. You cannot be joyous until you are grateful. It prevents you from appreciating whatâs important and getting down to the basics, the basic small irreplaceable things that make life special.
If your income is below $75,000, more money allows for more happiness in that it allows you greater access to basic necessities, which is essentially an improvement in your overall quality of life. But any increase above that $75,000 doesnât truly affect happiness in a concrete way. Sure in the short-term, we love a sugary ice cream until it spikes our blood sugar, flips our mood, reverses serotonin, induces guilt, and doesnât make us feel all that better afterwards. The law of diminishing marginal returns is found everywhere, especially within materials but even more so with experiences sometimes.
Experiential Detour
Most would argue experiences are the most pleasurable gifts. If you try to compete with someone for a birthday gift or Christmas present and want to leave a lasting impression, you donât look for the biggest and boldest most expensive lavish gift. Instead, you focus on quality over quantity and less is more often found in experiences.
Think back to the presents you received in your life. Most likely you only remember ones from 5 years and up since we start to remember more past this age. You probably donât remember the plastic toy or gadget you received at age 10. Possibly the stuffed animal if it had a fancy monogram and your parents told you to keep it since they spent more than they wouldâve liked to on it but most of the time, itâs in the small adventurous trips that made you think differently that last. Something as small and creative such as a make-shift secret garden in your backyard you played in as a child or visiting an animal at the zoo are usually the most pleasurable experiences that leave a lasting impact.
But the question comes down to, are they helpful?
As with everything, they can certainly make our lives easier filled with more bliss. Materialistic tangibles or not, what we acquire and spend our time with is in the effort to hopefully make our lives better in some sort of way. Now, not every 6 hour flight to Hawaii is pleasurable, but it is part of the experience that makes it worth every penny. They go hand in hand in many situations. Without tangibles, there would be no experience and vice versa.
Conspicuous Consumption
When it comes to acquiring experiences, we tend to fixate too heavily on conspicuous consumption, the attainment of luxuries in order to impress others. In this day in age where Instagram filtered photos and online shopping are all the rage, although these are pleasurable experiences, nothing on social media can become more enjoyable than downloading the app in the first place. Similar to a long awaited trip, the best part is usually the anticipation. Social media has a low bar and expectation. Everyone on social media can confess to having spent a bit too much time on there than they should have, a.k.a addiction and not feeling better afterwards. Thatâs primarily why Iâm not online. I donât want to be hooked to a digital weapon or feel worse about myself after scrolling. That is the worst possible experience yet apparently millions of users cannot go on vacation without certifying it on Instagram.
Thatâs a poor use of an experience. Might as well not go in it at all. We are seeking gratification and approval from others robbing us of joy. When we purchase goods on the other hand, at least we are purchasing a good in a present way and at that moment, not intending to please or impress anyone, instead simply for oneself. Later on it can be for other reasons but at the moment at the register, you are enjoying the experience more than vacationing on Instagram.
Sell-offs in the market involve the same mechanisms and emotions. Although it is advised to tame the ego and keep emotions at bay, we are human and come with our bias, emotions, perspectives, and flaws. Buying the dip is a natural response especially from cashed up buyers who wait for the opportune time when their favorite companies are at lower valuations. Scanning portfolios for losses to offset gains is advantageous and mimics a prudent consumer willing to take advantage of a sale or low interest rates. Although many consumers forget that a sale still entails spending money, the act of buying something gives them more joy and pleasure later on since goods, tools, gadgets, and products, or an investment account in this case, can and in fact does pay dividends for a lifetime, as long as you invest in a passive way through the DCA approach for at least 5 years and donât monitor the markets like a hawk. Experiences are pleasurable and last, but may not provide us this benefit or life altering solution that can really help us even in life threatening situations.
Everyone has a different take on this. Thereâs no right or wrong answer. If you have some time, I would be curious to hear your perspective on whether you prefer investing into experiences or materialistic goods. Which one has a higher return YoY or Life Over Life? If there is one, whatâs the balance?