In his book, Clements offers investors some tried-and-true, timeless advice, such as keeping investing simple and uncluttered by emotion. To this end, he suggests a simple portfolio construction comprised of a total US stock index fund, a total international stock index fund, and a total bond index fund.
The nuts and bolts are great, but what I love best about this book is the exploration of the relationship between money and happiness. Clements notes, in spite of the U.S. standard of living skyrocketing over the past few decades, that quantitative research indicates Americans are no happier than when we were less economically well off.
We all have a tendency to place a carrot in front of our nose that promises happiness if we could only get that promotion, or buy that house and luxury car. As is so often the case, the promotion brought more stress, the new house came with a huge mortgage in times where employment is more uncertain, and that luxury car got dinged several times in the parking lot. That carrot of happiness can be very elusive.
Clements notes a term psychologists call the "hedonic treadmill," which describes the insatiable drive some people have to achieve more and more in life, whether professionally, financially or materially, yet are likely to die unsatisfied. This treadmill is about as irrational as a hamster running feverishly on his exercise wheel expecting to get out of the cage. The good news is that that it's possible for all of us to get off this treadmill, and out of the cage, by remembering that the basic car gets you where you need to go just as fast as that luxury car, and the smaller house actually requires less maintenance.
It's also important to remember that money is a means to an end. Our relationship with money can be either constructive or destructive. And it's possible to go way too far in being frugal. One of my clients has a net worth in the tens of millions of dollars and hates his primary care physician. He won't see another physician because his health care insurance would require him to pay more to go out of network. Though I can't disclose specifics of the financial plan for this client, I can assure you it doesn't have him taking his money with him when he leaves this world.
Clements leaves us with some good advice, such as the importance first and foremost of figuring out what we want to do with our lives. I happen to think this is a much tougher task than investing. Carefree days of happily playing golf may fuel our fantasies, but empirical research shows that what truly makes us happy is:
- A sense of purpose -- working toward a cause we believe in.
- Friends and family -- getting off that treadmill and spending time with others