Here’s a tale about two friends.
And our divergent approach to investing.
This friend (who we’ll call Jim) and I are of the same “cohort.”
We were both born in 1979. We both went to fancy colleges. Our kids are the same age. And we both spent significant chunks of our careers on Wall Street (doing pretty well).
But we had one notable difference. Our investing approach.
Jim is a super-active investor in real estate.
I, on the other hand, find investing ridiculously boring and pretty much only dollar-cost-average into one (highly diversified) index fund.
Jim and I serendipitously reconnected this summer at one of the many COVID-delayed weddings. After our normal pleasantries, we ended up talking about investing.
Jim told me about the impressive real-estate portfolio he had amassed during his 20 years of adulthood.
He’s got apartments, brownstones, single family homes and – even a warehouse – spread out across the country. He fixes some of them up. Re-finances others. Lives in some. It’s truly impressive, considering his day job is no walk in the park.
Jim’s also diligent in tracking his returns in Excel. So I asked him, “What do you think your return was over the 20 year period?”
“Low teens,” he answered. (Pre-tax, I believe – but didn’t clarify.)
Low teens, over a 20 year period (covering a busted tech bubble, global financial crisis, and pandemic) is damn good. Jim certainly created a lot of wealth for his family over that period.
Coincidentally, my I knew that over that same 20 year period, my lazy-ass strategy had generated roughly 9%.
Jim’s strategy clearly outperformed mine, by 4ish percent. (In finance, they call that out-performance over a benchmark “alpha.”)
4% of out-performance (per year) over 20 years is a lot.
As I congratulated him on the discipline and dedication of his approach, he issued a caveat:
“Thanks. But during those 20 years, I probably spent 10 hours a week talking to contractors, accountants, real estate lawyers, plumbers, angry tenants, leasing agents and landscapers.”
(I quickly did the math, that’s ironically – 10,000 hours.)
He described having weddings interrupted by leaking pipes. Having to move into one home that wasn’t renting at “fair value.” And collecting mountains of receipts to pass-through to his LLC.
Conversely, my strategy was so boring that it required a single action each year: Downloading my 1099 Tax forms and emailing them to my accountant.
That’s it. (Not to mention, having never paid capital gains taxes on the investment over 20 years.)
As we compared notes, Jim added. “I think my life would’ve been way less stressful if I had followed your approach.”
I often contemplate the currencies of wealth. Surely, financial wealth is a meaningful component of being wealthy.
But what else should be included? Health. Relationships. Purpose. Time. Our inner landscapes.
But Jim’s tale highlighted another measure of wealth: freedom-in-attention.
The one thing rich people wish they didn’t have to do
When I ran my (now retired) money coaching practice, I worked with executives, exited-entrepreneurs and CIOs. By any metric, they were rich. But like clockwork, they all shared one unattainable goal:
I wish I didn’t have to check my email so often.
While these clients were traveling to their Hamptons summer homes, attending exclusive Super Bowl parties and skiing on private mountains – they always lamented one required behavior.
The need to constantly check their email.
They were ridiculously rich. But attention poor.
Some were checking stock prices (now replaced by Ethereum and Ape prices).
Others needed to respond to legions of executives who needed sign-off on pressing initiatives.
One needed to constantly be in touch with his estate manager (yup, the person managing a cook, driver and army of nannies).
The checking never stopped.
Late at night. On the PJ. In the hospital welcoming a new child. Yup, you guessed it: even at funerals.
My coach once told me:
If you’re constantly checking something. You ain’t rich.
I borrowed the term freedom-in-attention from my friend Lawrence Yeo’s phenomenal post Money is the Megaphone of Identity. As you see from Yeo’s Money Spectrum. Freedom-in-attention sits above freedom-as-leisure (the ability to take vacation) and freedom-in-work (the ability to work on your own terms.)
Back to my buddy Jim and I.
We both made conscious decisions about our freedom-in-attention. Personally, I’ve discovered that as I age, the “price” of my attention has gone up.
Said differently, if something can make me excess returns, but will constantly distract me (like owning a home) – it becomes significantly less attractive.
But it’s also not a steadfast rule. On January 2022, RadReads will become a true company with W-2 employees, payroll and lots of policies. Managing a team will most definitely eat into my freedom-in-attention.
Yet, I’m ok with that. I want that.
I’m passionate about the mission, excited about what we can deliver for our students and most importantly in awe of my new colleagues.
So to me (as long as we don’t devolve into communications hell) – it’s a trade-off that I want to make.
It’s a trade-off I’m excited to make.