Envy: Keeping up with the Joneses

November 19, 2013

Envy is one of the seven deadly sins. The need for approval and respect drives us to do crazy things. Trying to look cool for other people often results in some very poor and dangerous financial decisions. According to Gary Shilling, a well known economist, “The biggest mistake people make is when they get stars in their eyes about the “killing” someone else has made. That’s what fueled the dot-com bubble and prompted people to own a half-dozen houses during the real estate bubble.”

The same is true for investing. I am not investing in the latest IPO, craze or fad, so I can brag to my friends and family that I doubled my money in a year. Our goal is not to make the most money in a year or two or three, but our goal should be to build wealth for the long term. We want to protect our money during the inevitable downturns to make sure that any decrease in stock prices will not result in a permanent loss of capital, but merely temporary. Paradoxically, this strategy actually makes you more money than any one else….in the long run. You have to be patient for many years and even decades.

In the book Millionaire’s Mind, the typical millionaire doesn’t have fancy houses, cars or clothes. Some even go to Costco with holes in their jeans. Dave Ramsey, a leading financial expert says “To live like no one else later, you have to live like no one else now”.

The same goes for investing. If the Joneses think your investments are cool, you are heading the wrong way. If they think your investments are boring or crazy, then you might be on the right track.

Ken and Barbie Jones’ (named after the Barbie dolls i.e. the average American) dirty little “secret” of spending too much, or investing unwisely will come back to haunt them. On the other hand, frugal defensive smart investors’ like us don’t need to try to appear looking cool for other people, because we want do cool things for our own benefit, and not for others.

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