OK, You Are Lucky Enough To Have Enough, Now What?

by: Jim Sloan


It's hard to accept that your time horizon is shrinking and your work and investing life have a more muted importance.

Sometimes a little health jolt can serve as a useful wake-up call; what you do and do not think about over four days in a hospital may provide hints.

Investing with a shrinking time horizon is part science, part art, addressing what you really want money to defend against.

The options include a simple de-risking and hunkering down; various levels of more aggressive diversification; investing in your own health or personal growth, or for your heirs.

Another option is to keep investing as you always have because, hey, it keeps you engaged and busy, and you love doing it.

"With all thy getting, get understanding." -Malcolm Forbes

An Odd Habit

I used to have this odd habit. I liked to read magazine lists of the best and fastest growing jobs for the next ten years. I couldn't get past an article on this subject. The odd thing was that I wasn't 30. Or 40. Or 50. Or even 60. My interest in lists of "10 best future jobs" didn't really taper off until I was 70 and starting to do my homework on how to take Required Minimum Distributions.

I wonder: how many of you readers share this odd habit?

Nothing is harder than admitting that you are getting older. It changes everything. Shadows lengthen. The time horizon shrinks. Things like "10 best jobs for the next 10 years" cease to have meaning. You get serious about asking which things are truly important and which things are trivial.

How do you know you have reached that point? Some people never do, of course. They always want more. I am not one of them.

I have enough. At least I think I do. The problem is, it's hard to know how much is enough. Enough to what? To be sure of food and shelter? Check. Have good medical care? Check. Take trips? Check. Take care of the people I care about? Check, within reason. Deal with big surprises? Check, I guess. Thumb your nose at the rest of the world?

It's having what I call having "go to hell!" money. You can tell the boss or anybody else to go to hell without consequences. I'm occasionally tempted, but so far I have never done it. It is nice to be able to. It's psychological money in the bank. It means that if you're nice to people, it's because you really like them. Financially, you have no ulterior motives. What I have learned as I approached "go to hell" freedom is that I actually like almost everybody I see on a daily basis.

I still don't really know exactly what having enough means. It obviously depends upon the person. I do think I have enough for me. I won't tell and you won't guess. You don't know me well enough. I just feel okay, and no longer worry about money. Part of it is on the debit side of the ledger. I've never thought much pleasure comes from being able to buy things. That can be a big part of the glide path to enough. The things I like can be paid for on an Average Joe budget. I don't feel I've ever done without, even when I was poor by most standards.

I once told the then woman in my life that I thought wealth was measured by what you can do without. That's not do without as in deciding whether or not to lick the bottom of your bowl as in the Gulag Archipelago (ref. Solzhenitsyn's Ivan Denisovich). I just mean the ability to live happily without aspiring to more. The woman in my life at that time thought I was nuts. Why would a person want to do without anything? But I believed what I said. If you don't need much stuff to be happy, you have a very good shot at a happy life.

I should at least reveal that a couple of the suggestions below are out of my personal reach. I will never buy a house or stash money in Switzerland or the Cayman Islands, for example. That may put a ceiling on the level of assets you would guess I have.

I Get A Wake-Up Call

The epigram I used above from Malcolm Forbes used to be on the top of the opinion page of every issue of Forbes Magazine. I first noticed it when I was about 12 and started reading Forbes cover to cover in my local small town library. Pretty philosophical for a money guy, I thought. I just quoted it from memory after more than fifty years. OK, I looked it up while writing this piece and Forbes still has it. I had remembered it word for word including the unexpected "thy," so it must have had an impact on 12-year-old me. It sounds like it might be from the Bible, but it may just be something Forbes himself jotted down after belting a few Scotches.

After a lifetime of "getting" - careful saving and investing - I have gradually come to this "understanding": the journey through life steadily compresses the future into a shrinking time horizon. Nothing can stop it and nothing is harder to accept. Your future compresses itself into the present, and will soon lie in the past. Whatever you do, from health to money to pleasure, needs to get aligned with this fact.

I first heard it put this way by my 90-year-old dear friend who had recently lost his wife of 65 years. The big change in his life, he said, was that he no longer had a future. That's despite the fact that he is in great health and has good energy. What he doesn't have is any interest in his investment portfolio. He doesn't care who wins the election. He doesn't want to meet new people. He doesn't have a future because he no longer has anyone to share it with. When he comes home in the evening there's no one to discuss the day's events and news with.

My biggest problem is less drastic. I struggle with how hard it is to accept that I'm not a kid any more. I still teach tennis lessons every day, knock out the occasional SA article, manage family money, and do the payroll and payables for my wife's business. In my spare time...well, I try to avoid having spare time.

I think I know myself. I want to live like members of tribal societies for whom there is no distinction between work and leisure. I wouldn't mind dying like their old people did, either, left by the side of the trail with a knife to fight it out with wolves or bears. It definitely beats hospitals with IVs. Here's how I gained that insight:

About ten weeks ago I had a wakeup call. I had soldiered through two days of teaching tennis lessons in spite of abdominal pain which "would have been significant for a civilian," as I often say. I was pretty sure it was just a kidney stone (though in an odd location). Kidney stones cause some pain, but they don't kill you. I've had a few, including one that required surgical removal. The second night I followed my wife's instructions to drink a couple of bottles of beer and jump up and down in order to pass the damn thing. I've done it before, and it sometimes works.

It turned out to be appendicitis (under 2% probability at my age). My appendix ruptured, probably during the second 10-hour day of tennis teaching. The jumping up and down probably didn't help much. It was a pretty close thing with some help from a sub-standard performance by the first emergency room I went to (nota bene: West Sub, Oak Park, IL, don't go there: not as much as a question from them over five hours, so I left telling them that if I received a bill they would receive a Molotov cocktail). The second emergency room rolled me right into life-saving surgery, which turned out to be by a terrific surgeon whose daughter had taken tennis lessons with me. "Pretty bad mess," he confided as they started the IV.

They kept me for four days because I emerged from the event with a-fib, which after much nuisance and rigamarole turned out to be a transient result of the whole appendix episode. The hospital in which I was incarcerated smelled like sour something or other, and I couldn't bring myself to eat the food. When the doctor said I had to eat something before they let me out I ordered and ate a banana.

Meanwhile I shared a room with an unfortunate fellow who obviously was approaching a relatively proximate expiration date. I didn't do my usual market checks. I couldn't concentrate on John Keegan's wonderful history of World War I. I couldn't advance a page in Richard Feynman's QED. I found it terribly hard to organize the end-of-summer tennis awards banquet. Nothing seemed important.

All I could do was think long thoughts about short time horizons. The poor guy in the next bed was dying. He had no visitors except doctors. I became acquainted with a new idea: the loneliness of mortality. Visitors weren't helpful, and I offended a couple of friends and my children by not informing them that I was ill.

The day I got out of the hospital I went back to my normal schedule against doctor's orders. I was totally fine. Tests would soon confirm that. I was almost my old self, but there was one difference. Maybe it was the poor guy in the next bed, alone, unvisited, at least fifteen years younger than me. I had survived, but the lengthening shadows had finally begun to extend their reach in my general direction.

My usual approach to my own death has been to joke about it. Why not? Joking got me through Vietnam. At the final meeting with each cluster of tennis students going off to college I always tell them, "Remember the outrageous stuff I said and wish me health and a long life because you guys have a stake in it. When I die, you guys all disappear."

That line is always good for a laugh. The problem is, it's true. Everything will disappear - my wife, my children, my cat, my friends, my students, the United States of America, the markets - everything I love. That's the general context in which we all do retirement and estate planning.

Investing With A Shrinking Time Horizon

Investing is about the future. So is money in general. Money in all of its major forms has no intrinsic value. It is merely a store of value for things you can exchange it for at a chosen point in the future.

When there is a compressed time horizon, money and investing need to be redefined. My 90-year-old friend tacitly acknowledged this. He had once bombarded me with investment questions including cockamamie products his broker was trying to sell him. Now he had simply put his portfolio out of his mind. It no longer mattered. He had his needs redundantly covered. Money couldn't buy him anything which had meaning for him. His only son was highly successful, and his grandchildren were doing well. What were his investment goals now?

I realized that I have resisted thinking about this question.

How many of you readers share this resistance?

Saving and managing money has been a big part of my life. I started reading the stock page when I was about 11 - helped by a mathematician uncle who gave me a fascinating explanation of option decay math. That's the real way I was introduced to both statistics and calculus, by the way. It was totally interesting. I got up early every day, rushed to the front door to get the Greenville News, and posted hand-crafted stock charts on logarithmic graph paper taped to my bedroom wall. Was I a weird kid or what? I took a bus on holidays from my little hick home town to Greenville (then barely more than a slightly larger hick town) in order to watch the ticker tape on the wall at Thomson and McKinnon brokerage.

I never rushed at life with more furious energy than when I was discovering the markets. Unlike Warren Buffett, I wasn't really obsessed about becoming rich, but I think I shared one thing with him. The financial markets were a link with the real world - the world away from my little hick town, the world you could capture glimpses of on television. I sent off for annual reports and poured over them after midnight when my parents were asleep, learning basic accounting in the process. Annual reports had the ultimate romance. While reading them I felt myself connected to the great world where important and innovative things were taking place.

Investing makes you reach out and pull information about the world into your head. Most people get to know the world through one or two primary areas they understand well. Investing was one of my areas. It was never really about buying things, and only partly about being comfortable and secure. But how do you think about it when the horizon shrinks and those basic things are under control? Here are a few of my thoughts:

1. The default option, I think, is to de-risk and hunker down. You can do this comfortably if your assets and probable time horizon are such that you are not very concerned about inflation. From managing other people's money, I suspect that the majority of people do something like this, including turning some assets into annuities (which as a RIA I abhorred and discouraged except for addictive spendthrifts who needed to be lashed to the mast).

A good friend of mine who built an extremely successful business, which he still owns and runs, once told me that he instructs his investment advisor to get him 2-3%, not much less but also not much more. He warned the guy that if he came in at the end of the year and told him he had made over 8%, he was fired! That would mean his guy had been taking too much risk. That's what I call hunkering down. To me it makes perfect sense.

2. Diversification and redundancy.

Own uncorrelated things and uncorrelated assets. I Bonds and other Treasuries are not correlated with stocks and, more important, come from a different source - the source of last resort, the U.S. Government. So does my Social Security. Even though my Illinois State Pension costs me a reduction of it, Social Security comes from a different and more secure place. Ditto my little pine tree stand, especially if improved with a block house, some canned goods, and rifles. Which leads to another level of diversification.

3. Extreme diversification and redundancy.

In Wealth, War & Wisdom (a must read for investors and history buffs: did you know that the German market began to collapse just before - before! - German armies reached the outskirts of Moscow?) the late great Barton Biggs suggested some sort of nearby bolt hole or escape hatch - maybe a farm outside of nuke range from your city with rifles, antibiotics, canned goods, and a cellar of good wine. To me it might just be a small house in a more westerly suburb with a vegetable garden and within easy bicycle reach.

Biggs also thought assets in another country were a good idea. I'll let him speak for himself: "No matter how safe and secure your home country appears, even if it's the United States, every truly wealthy person should have some assets elsewhere. History suggests that nothing is forever. Extreme political change, a terrorist attack, a meltdown of the financial system can happen anywhere."

What makes this view interesting is that he wasn't a guy with a 30-year beard in deepest Montana but the senior guy at Morgan Stanley and for years a Wall Street Week panelist. You just have to ask yourself how much of a nut you are. I'm a moderate nut.

4. Collectibles. I'm not really much of a fan, although my first wife was an artist, a pretty good one, and has done well by swapping prints with friends whose works rose in value. In the above book Barton Biggs tells WWII stories of wealthy Asians in occupied countries who managed to save themselves and their families by bartering jewelry to Japanese officers. The officers gave the jewelry to their girlfriends in order to keep them sweet. I can't even choose jewelry to celebrate occasions for my wife. I would be a dud at choosing art or jewelry.

5. Find ways to spend money productively but consistent with your values. You might, for example, invest in whatever might improve your lifespan and healthspan. Personally, I spend a small fortune on vitamins and supplements. Maybe they work, maybe not. So far so good on the health front except for dumb things like pain denial with appendicitis.

6. Invest in your personal growth. How about education? Go back to school, really master a new field. It can be practical or not practical at all.

For me the impractical area is physics, which I never actually took a course in. I learned all I ever got from physics textbooks doing problem sets for Presbyterian College tennis players in exchange for their hitting tennis balls with me. Now that was an investment! I have earned a second income for 30 years teaching tennis lessons. The textbooks, unfortunately, had it all wrong. They started with levers and pulleys, which are very dull stuff and proceed to the cutting edge insights of Archimedes.

The right place to start, I think, is with the ground you are currently standing on. The young Freeman Dyson watched in astonishment as Feynman scribbled equations on a blackboard until he understood what he was watching. Feynman had derived Maxwell's Field Equations - the 19th century unification of electricity and magnetism - backwards, starting with quantum theory from which they are a secondary consequence. Isn't understanding things always backwards like that?

My wife, of course, would be happier if I learned the basics of plumbing or carpentry, or at least how to put those stupid conical light bulbs into the kitchen ceiling. I'm bad at those things - a klutz, not much of a real man. I may take a course at the local community college to improve myself. But remember this: Heisenberg almost flunked his doctoral exam in physics because he couldn't explain how a battery worked. He's the quantum matrix guy (he didn't really understand a matrix either) but he gave us the "uncertainty" (indeterminacy) principle. He also headed, and sabotaged, the Nazi A-bomb project.

7. Consider that your investment time horizon may not shrink at all but may actually increase. Is your investment time horizon truly capped by the end of your own life or the lives of the immediate others you care about? Does your family contain, for example, a special needs child? Are there things in which you can see value into the indefinite future?

8. Keep dancing with the one that brung you.

I got to the promised land of "enough" mainly by playing small ball, a little by being lucky. I'm a singles hitter. Just once I got very lucky with a leveraged short of the Nikkei (1989) the kind of trick I don't recommend trying at home.

Here are a few of the small-ball things I did.

a. I loaded up on I Bonds starting in 2000 right after they came out. The first few years they paid more than 3% real and you could buy an annual $30K of them. Now you can only buy $10K, at a far worse rate, but I still do. Those silly I Bonds, it turns out, beat the Nasdaq over the past 16 years.

b. I gamed the bejesus out of my University of Illinois pension. How? I just took the time to read the literature about how the thing worked. I put in quite a bit of extra paid time during the last four years. They have now paid me more as a retiree than they paid me as a professor.

c. I also studied Social Security and made sure to do enough non-academic work to qualify. I should add that my Social Security payments are going up about 10% this year because I kept working, replacing low income years with my current tennis earnings.

d. I always kept a lot of cash and underperform what a fully invested portfolio would have done. Drawdowns have been modest.

e. When confident I invested in a concentrated way and continue to do so. In July 2015 REITs looked cheap and I filled my retirement accounts with them. This year, about July 30, I flipped from REITs to banks. I wrote about this decision here. But I never do so much of this kind of thing that it would ruin me if I turn out to be wrong.

f. I arbitraged the last two large Buffett deals heavily - using almost my entire large cash reserve. I don't know the risk arb business except from a distance but I think I know Buffett.

I think I'll keep managing my money more or less like this even though I may have hit the "enough" moment. It keeps the mind active. It's fun. It keeps me connected to a world I have spent a lifetime learning about. Everything I do at this point in my life is fun. With all thy getting, be sure to get in some fun.

The Four Pledges

About a week after I got out of the hospital from that near miss with the appendectomy I made four pledges.

1. I pledged to make a Will.

"My God!" you are saying, "You actually don't have a Will?"

That's the more money-savvy of my children speaking. I explain that different beneficiaries are marked down in different accounts and on legal documents.

"Really though," he says, "No Will? You of all people!"

He's right. A Will is a practical necessity for almost everybody who suspects that he will eventually die. I used to suggest it to clients. In my case, it forces me to work out how to apportion my modest-but-enough assets among potential heirs according to need, temperament, capabilities, and the important factor of expressing equal love. The real resistance may be that by making a Will you are acknowledging your own mortality. Who wants to face up to that?

2. I pledge to do all the things I have wanted to do - like tougher hikes and climbs in exotic places - even if one of them kills me. Base Camp One. Mt. Elbrus. The great American trails. Kili. The Rockies. What the heck! If a thing kills you, at least you don't sit around having regrets.

3. I pledge to learn how to accept and enjoy leisure.

It's okay to have a few hours a day when not being "productive." For me, a good start to this pledge might be making myself get up from my computer within 15 minutes every night after dinner and go upstairs to sit down and be available to talk with my wife. I have a very fine wife and actually enjoying talking with her. I need to accept quiet companionship. We don't even need to talk in any highly active way. I can read a history book, a physics book, or a cat book. She can read one of her high class detective stories or study Spanish grammar speaking out loud with little pings when she gets it right. Or she can watch reality TV. I should go upstairs immediately any time I hear her laugh out loud.

4. I pledge to learn how to spend money.

Think travel, tipping, shoes, razor blades, giving. I need to stop being a cheapskate. I could probably write a book about my struggles with this last task, but rather than giving a handful of random thoughts here, I will try to follow this article with a piece on the subject of learning to spend.

I would start it now but my wife just saw something on TV that made her laugh out loud. For now I'm going to hit the Save Draft bar and head upstairs.


Before I go, let me just say that this is a thought piece. I suppose the most important thing I have come to understand is this: I had the great good luck to be born on an amazing planet that is part of an astonishing universe in the most wonderful country at a marvelous moment in history. The things I want most before I leave are to see, do, learn, and experience as much as I can.

Most of you probably have far better ideas about retirement choices, philosophies, and investing than mine. This could be a very interesting comments section. I urge you to share. I will pay close attention to all the comments.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.