Saturday, September 18, 2021

Real Wealth

We have a unique relationship with money. We want to have enough to be comfortable, but very few want to stop at that. We Indians want enough for our future generations too. Intergenerational wealth is common, with the inherent risk of the diminishing hunger of the future generations if they get too comfortable. Wealth is always relative. We feel wealthy not because of a certain number of net worth, but because we seem to be at par with whom we consider to be our peer set. While it is difficult to arrive at absolute net worth numbers (other than for those on the Forbes list), we try to make our judgement and place ourselves on a scale relative to others. Most of us also aspire to keep growing our wealth without paying attention to it – a task almost impossible and a subject for another day.

What is real wealth? Is it the ability to buy what one wants without thinking twice or bothering about the price? Even Kuber would find it difficult to sustain a lifestyle like that. If the whims are too frequent and the tags too high, one would find the coffers empty at some point, having spent itself on things that at best, can give one a temporary high. Real wealth can be the ability to buy things that are not for sale.


Is real wealth living a prosperous life? To have people take care of all your needs and to be able to take care of people who are dependent on you? At the base level, yes, and we try to reach higher from there.


Real wealth can also be the ability of able to maintain your current level of lifestyle while giving up the primary source of income which drives the lifestyle. For professionals it may mean giving up their current profession and focusing on their passion (if the two are different) without compromising on their current lifestyle.


What about non material things? Is good health real wealth? “Health is wealth” is definitely true, as anyone with serious ailments will tell you. Wealth and health are not a trade off and should not be mutually exclusive. Our character and reputation are also equally important.


Real wealth is also the unconditional love of near and dear ones. Having people to really care for you. It is the outcome of a life lived to its fullest and helping others realize their true potential and achieve their dreams. Material wealth along with a life of resentment and ungratefulness does not sound like a great life.


Real wealth is the total control on your time. “Time is money” is totally true. Time is scarcer than money hence becomes more valuable, in comparison. The ability to decide how to spend one’s time, in my view, is the litmus test of wealth. This can come only after one has achieved all what we have covered till now, and some more. Even the wealthiest are sometimes the slaves of their calendars. Time is finite, money is not. Every day all of us all over the world start with the equal amount of time available to all of us. Very few have the privilege of using their time as per their absolute discretion, and that, to me, is real wealth.   


In your view, what is real wealth?

Saturday, September 4, 2021

The Big Risk In Too Little Risk

What do we think of when we think of risk? For most of us the initial thoughts may go to losses, downsides or doing things outside our comfort zone. Only few will think of the potential upsides of risk. But we should, as all risks have two possibilities – upside and downside. Payoffs and losses. This is where “calculated risk” comes into play. We hear this all the time from our sports commentators. The players or the team captain/coaches taking these calculated risks. What it means is that the risk- reward ratio is such that warrants taking an action that is different than normal times. The important thing to note here is that calculated risk does not mean it will turn out in our favor. As no outcomes are 100% guaranteed, if they are, where is the risk? Where is the risk if its popular and everyone is doing it? All decisions, even good ones, have some probability of things not going as per plan and going against us. Calculated risk means that we have thought through the possibilities, are aware of the consequences and we are now confident of making our move. If the situation is such that without a risky action, it cannot be redeemed, then it is not a calculated risk as our hand is forced and the risk should have been taken earlier.

We may think of risk as something that only businessmen/CEO/Politicians/Sportspeople take – anyone with high stakes, that is. Completely wrong. All decisions involve some payoff and hence some risk. All of us make decisions hence take risks. In fact, I believe, we do not take enough risks, as we become fixated with what can go wrong. Most everyday decisions don’t involve a life/death situation (unless you are a surgeon or at the border) are also easily reversible. Only a few big decisions need to be deliberated upon with adequate importance being given to the potential payoffs.


We Indians generally don’t like risk. Maybe risk has not paid off for us for too long. Most mothers (mine included) encourage kids to be risk averse. I believe it’s a sub-optimal way choose our professions. Or our lives. Our investments. Risk free is also upside potential free. Nothing ventured, nothing gained. We all can do with some dynamism and some discomfort to get to our desired optimal levels. Like exercise – we can be comfortable on the couch or get out for a workout and enjoy the upside of that discomfort. The other end of this spectrum is people who take too much risk – we all know some of those. This is equally bad and again, a review of the decision making process is highly recommended. Risk builds up slowly but unravels quickly. Panics, Manias, collapse, run on an institution are all outcomes of risk coming off rapidly in the economy. Destruction follows these events, followed by rebuilding and a new life.


Turns out, risk is like all good things in life. We need to have some of it to keep pushing ourselves. Too much is fatal. So take some risks. Approach that stranger that seems interesting. Evaluate that job opening. Back that venture. Follow your dream. Do bigger things. Push yourself. No pain no gain is totally true. Pushing the boundaries is totally cool. If there is no risk, things are not at their optimal yet. There are some segments in our lives that should be totally risk free – the choice of our major relationships, some of our investments, the choice of where you live etc. All other areas should be open to an audit of the risk in them. Any good decision can have a bad outcome and bad decisions can have good outcomes. The idea is not to turn speculative or a risk addict or an adrenaline junkie but to be able to review the payoffs and act when the same turns favorable.


This choice is ours to make - between a guaranteed mediocre outcome or some chance of a great one. The biggest risk is taking no risk at all and certainty of a sub-optimal outcome. There is no judgement if one chooses one over the other, as long as we are aware of the choices and are making them consciously. It’s a very personal choice as unique as our fingerprints. But these should keep changing over a lifetime, if they don’t, we are not thinking enough about them. We need to be conscious of the cycles too. Risk takers are sometimes felicitated and sometimes ridiculed, depending on where in the cycle one takes risk. Betting the house is definitely not a good risk, the quest is about doing things optimally to get a better outcome. To avoid regret of not taking that decision. So go back to your drawing board, put up your decision making matrix and see if it can do with a little bit of risk. When to take the risk and where are equally important. We can’t change the past but starting today, we can change the future, one decision at a time. The best promise we can make to ourself is to not repeat past mistakes. And the best favor we can do to ourself is to keep that promise. Fortune favors the brave and the well prepared. More power to you!!