Wealth Made Simple
A Review of Brian Portnoy’s The Geometry of Wealth
“Being rich is having “more.” The push for more is a treadmill on which satisfaction is typically fleeting. The quest to be rich usually doesn’t end where many of its sojourners think it will. Wealth, by contrast, is funded contentment. It is the ability to underwrite a meaningful life — however one chooses to define that.”
Portnoy, author of The Investor’s Paradox, has a masterful ability to break complexity down into its fundamental components. He’s currently the head of Investment Education at Virtus Investment Partners, and you can easily tell the amount of time he has put into thinking about how to explain investing to the average layperson. This isn’t your standard tell-me-what-to-buy personal finance book, and for that reason, it’s arguably much more valuable. Portnoy provides a framework for understanding the challenges we face as investors, and how we should approach using money as a medium for finding happiness. That last aspect of personal finance isn’t spoken about enough — most books focus on the “how” of making money, rather than the end goal we are all actually seeking: being content and comfortable with what we have.
The challenges for first-time investors today are formidable. Prices of most asset classes are high by historical standards, and future returns may be lower across the board. The shift from defined-benefit to defined-contribution plans over time means that most employees will bear all of the risk of their investments going forward. Add to that the disruption technology is constantly bringing the labor market, and the future is looking awfully uncertain. All of these factors make being diligent savers and investors over time even more important.
Portnoy outlines the three major steps investors need to take in this framework:
- Define your purpose — figure out the ingredients for a life well-lived
- Set priorities — chart a focused strategy to do the right things in the right order
- Make decisions — employ simplified tactics to drive better outcomes
The author admits while this is simple, it is rarely ever easy. This is largely because our brains are wired to sabotage ourselves every step of the way. While we constantly seek out more and more in regards to wealth and material possessions, we rarely stop to make very conscious decisions towards our own happiness. The goal, Portnoy argues, isn’t the pleasurable-moment type of happiness, but rather a deeper sense of joy and fulfillment called eudaimonia — human flourishing. What types of things drive this type of flourishing? Portnoy provides us with the 4 C’s:
- Connection — the need to belong in social relationships and communities
- Control — autonomy over the direction and definition of one’s life
- Competence — mastery over a valued vocation or craft
- Context — the need for a purpose outside of one’s self
If you’ve read Daniel Pink’s Drive, these concepts driving fulfillment and internal motivation won’t surprise you. Under this framework, money is merely a mechanism by which we can more freely explore connection, control, competence, and context to increase our sense of fulfillment in the world.
As far as understanding markets and investing goes, the author sticks to big picture ideas. In the priorities section, Portnoy largely echoes Charles Ellis’ Winning the Loser’s Game, in which he argues regret and mistake minimization are key:
- Protect — always think about risk first, seeking to avoid mistakes if possible, and to mitigate the consequences of those that inevitably occur
- Match — keep your personal balance sheet, target individual financial goals (terminal and flow), match risk to time horizons
- Reach — aspire for more, give back to others, fund hobbies and adventures
In the make-decisions section, he explains how we should think about risk in a great graphic:
Higher risk does not guarantee higher reward. Rather, higher risk increases the range of possible outcomes. Portnoy also dives into how we should think about asset classes, correlations between them, and the liquidity of different investments. No parts of the book are devoted to specific fund or stock selection. He chooses instead to focus much more on how we can keep our behavior in check over the years, because our behavior (and mere exposure to the market over time) is going to ultimately determine whether our wealth can compound.
I really loved this book for its accessibility and what it preaches. Too often we get tricked into thinking the complexity and expensiveness must be required for better outcomes, when in reality keeping our plans simple can be our greatest strength. Portnoy provides a powerful framework for thinking about how and why we should grow our wealth in a way that leads to more of what we want — fulfillment in our lives. I would highly recommend this book.
