Problems that come with Sudden Wealth. And you make get them even if you are not there yet.

Problems that come with Sudden Wealth. And you make get them even if you are not there yet. gold coins 300x240

I used to like Quora a lot. It is a platform where you can ask a question and people answer it. The thing I appreciate a lot about Quora is the quality of the answer. They are typically a rather knowledgeable crowd, and from start till now, I haven’t encounter much trolls.

A very interesting question was asked and the answer most upvoted was interesting.

The question:

Is it worth leaving the family/community of the many middle class/poor, who have fun with each other with the few resources they have,… become…..the few rich who have fun with the material objects they have with the few friends they have?

The top voted answer comes from an anonymous person who by mid 20s made 15 million dollars. For a young person, that puts him in a position that many of us would dream of. The takeaway for wealth builders here is that, perhaps you have not reach his kind of wealth, BUT you are likely to hit his kind of ‘problems’.

From the 15 million 20++ year old here are some of his observations:

  1. Life definitely gets better. You don’t have to worry about things that otherwise you would. It is better than not having this amount
  2. You tend to fall into the trap of evaluating less
  3. You just lost the most popular conversation topic: complain about money. Because you cannot complain about it anymore
  4. People want something out of you. It makes you hard to tell who is your sincere friend or wanting a loan.
  5. 4 gets infinitely worse if you are not married yet
  6. With so much money, you have a fear that if you make the wrong steps, you are going to lose a lot of money
  7. Your family and relatives look at you differently. You will have a hard time living up to their expectations when it comes to Christmas Gifts!
  8. Satisfaction and Excitement level is the same. It is still a gauge. You get excited about the things you couldn’t buy in the first week, then you don’t feel it anymore. You need to LEVEL UP to feel it
  9. Strong people stay grounded and the same. But you do change (even though you don’t think you did), sometimes for the worse

The second upvoted reply was from an entrepreneur who made 10 million in a dot com stock, lost it and left 50k, then made 2mil and then 20 mil later

  1. Its horrible to lose that money the first time. It took him 4 years to get over it
  2. The 20 mil doesn’t taste as sweet as the first 2 mil, which happiness effect last for 4 years

Someone made a list of a special perception of you as a person when you have this level of wealth, this by his interaction with an exclusive group of wealth people:

  • If you don’t pick up the bill, you’re tight.
  • If you don’t provide the loan or surety, you’re mean.
  • If you’ve succeeded, it’s because you’re greedy, ruthless, workaholic, or mean. Your success is someone else’s loss, and the cause of their resentment.
  • If you buy yourself something nice, you’re materialistic.
  • All your new “friends” want to help you spend all your money, and con-men wanting to relieve you of it (don’t forget the stalkers and starstruck).
  • You don’t know if the girl who likes you is into you, your money, or what you represent.
  • If you say no to the sharks gathering (cough/wealth managers/cough), you’re obnoxious and/or foolish.
  • Your children don’t value money as they know they won’t have to work for it or worry about it.
  • If you can buy anything, nothing has any value anymore, and nobody can buy you a present, because you have everything.
  • Few others can empathise with you, including your old friends.

The take away from this is that, as wealth builders this is where we aspire to, and we think that we get there, ALOT of the problems will go away and happiness will be achieved.

Perhaps there is a reason the rich sticks with the rich because they understand each other better, even though the unrich tribe will think they are obnoxious.

Even if i have not reach that stage, the path to building wealth have already resulted in some of these problem. So its not exclusive of being very rich.

And it seems Rich does not always Equal Happiness.

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Behaviour Gap is a Cost and some Strategies to deal with them

Behaviour Gap is a Cost and some Strategies to deal with them risk mgmt

It takes more than learning from text books to make money. The difficulty is to grasp emotions and be able to counter natural tendency to buy high sell low. I am a sufferer of sorts thus i do bring up as much of these articles as possible to learn from them.

Servo Wealth Management have a narrative of a very well performing actively managed fund in 2013 which for the next year performed not as well

  • The good performance attracted more investors to invest in it in 2014, which it goes on to underperform. This gives an idea how difficult the environment for active managers are
  • Portfolio rebalancing should mean that investors rebalance by channelling more of their bonds or cash allocations to the fund. Sadly the investors pulled a huge amount out of it
  • The funds 5 year annualized return was 25% per annum which greatly out performs the SP500 and Russell 2000, but Morningstar reported that the investors dollar weighted returns was 15%, or 10% less. This is known as the behaviour gap.
  • St Louis Fed did a research on investors over the past decade and determine the behaviour gap to be 2%
  • Morningstar published an annual study on investor behaviour and found the past 10 year return gap to be 2.5%
  • John Bogle’s research in his book Clash of Cultures states that the gap is around 2%
  • First way of reducing such gap is to identify the workings in an Investment Policy Statement
  • Second, adopt a minimum cooling off period and add that as an addendum to the Investment Policy Statement. I like this approach in that, if the reasons still sound compelling after 1 year, then at least the decision is less on emotion. This would also let sudden volatility spikes such as 1987, 2009 to 2009 drastic bear markets work itself out
  • Third, invest in more broad based lower volatility funds rather than the higher risk and higher returns one. If you know that you are likely to have problems maintaining that discipline in a harsh environment, venture into one that is historically less harsh, so that it gives you more chance not to do stupid things

[Snails and Buffalos]

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