What Stoicism can reveal about wealth management: Lessons from a 2,000-year-old philosophy
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Stoicism has had a resurgence in popularity in the last decade. It is a school of Hellenistic philosophy founded by the thinker Zeno in third century BC.
Stoicism is probably best known for its most famous follower, Roman emperor Marcus Aurelius.
Although historical figures, such as George Washington, Thomas Jefferson and Ralph Waldo Emerson, studied Stoicism, it is popular today and embraced by business leaders and public figures. This increasing interest has led to best-selling books on the subject, including The Obstacle Is the Way and The Daily Stoic. With such popularity, many orthopedists have been exposed to this philosophy.
In this article, we apply five Stoic practices or maxims to the challenge of managing wealth, to make a 2,000-plus-year-old philosophy relevant for orthopedists as they handle financial issues.
Practice of premeditatio malorum
Literally, “premeditating evils” is the practice of considering what can go wrong in the future. The concept is not to become preoccupied with negative scenarios, but to concentrate on these enough to appreciate these may occur, visualize how one would cope in the short term and then, ideally, thrive in the future. By doing this, the fear and anxiety of possible disastrous events are dissipated. One feels more settled in the present, knowing you are prepared, no matter what life throws at you.
The valuable practice of premeditatio malorum has a number of applications to wealth management:
Consider ‘risk’ part of risk-return calculation
It is easy to nod one’s head when discussing risks of some investments and overreact when these lose value. An upfront consideration of risks, including picturing one’s reaction if assets lose value, can prevent future panic and be invaluable during market downswings.
Embrace diversification
One likely side effect of contemplating risk up front is an understanding of the value of diversification. Those who fail to consider market downturns or “black swan” events often are too concentrated in risk/high return asset classes. Conversely, those who practice premeditatio malorum will typically embrace asset class diversification.
Incorporate wealth protection planning using insurance, legal tools
Consideration of what can go wrong should extend beyond investments to other areas of risk in wealth planning, from physical destruction of property and being sued to becoming disabled or dying. The key is not to dwell on these risks in an unhealthy way, but, instead, to recognize risks, think about the likelihood of risks and take reasonable actions to mitigate risk damage. Through insurance, asset protection and estate planning, this can be done.
Luck: Preparation meets opportunity
Certainly, luck is an important element of all endeavors. In some sense, we are lucky to have been born at this time and place in history. Within wealth management, one may enjoy good fortune in certain investments that produce terrific returns. Yet, this “luck” is often preceded by a capital strategy, asset allocation model, and even due diligence on a particular investment. While these steps certainly do not ensure an outsized return, investments that do perform well rarely come “out of the blue” or from pure luck.
Consider any outstanding decisions made in your own wealth planning where luck was likely a factor as was diligent preparation.
More imagined than real suffering
“We suffer more in imagination than in reality.” — Seneca.
The wisdom in this timeless quote from Seneca can apply to almost any area of life. As human beings, our mental capacities can be problematic, leading us down a path of negative thoughts and emotions that may not have any tie to reality. The application of this wisdom to wealth management is important, as investors often get caught up in cycles of greed or fear, which leads to buying and selling that may not be tied to the market realities. In fact, investing with emotion can be detrimental. If investors can remove their inner dialogue from the process, or work with a dispassionate advisor to counteract such thoughts, they may have better outcomes.
Everything changes over time
“No man ever steps in the same river twice, for it’s not the same river and he’s not the same man.” — Heraclitus, pre-Stoic philosopher and a great influence on the Stoics; 535 BC to 475 BC.
This quote recognizes that everything changes over time and nothing is permanent which is crucial in long-term financial planning, and is also called retirement modeling.
A financial plan should no longer be a static written document that lays out a model calculated on one particular day, as this type of plan quickly becomes obsolete. Dynamic planning should involve a software-generated financial model that can be re-examined, tweaked and updated on an ongoing basis. One’s financial planning should reflect changes as these occur and be iterative in a way that adjusts each time one reviews and updates it.
Charitable planning
“The only wealth which you will keep forever is the wealth you have given away.” — Marcus Aurelius.
Many physicians make charitable planning a part of their wealth planning, especially as they approach retirement and beyond. For many, the psychological benefits of making charitable gifts is greater than if they spent the money on themselves. While Marcus Aurelius may have been referring to a belief in the afterlife, he can be accurately interpreted to mean having benefits during our life on earth. In a larger sense, Aurelius obviously saw the importance of giving wealth away and was likely encouraging his fellow wealthy Romans to do so. In this sense, his advice is as relevant today as it was 2,000 years ago.
- Reference:
- Wealth Protection Planning for Orthopaedic Surgeons and Sports Medicine Specialists and the newly-published Wealth Planning for the Modern Physician: Residency to Retirement are available free in print or by ebook download by texting OT20 to 47177 or at www.ojmbookstore.com. Enter code OT20 at checkout.
- www.health.harvard.edu/newsletter_article/In_Brief_Money_can_buy_happiness__if_you_give_it_away
- For more information:
- Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon at Northwestern Medicine in Warrenville, Illinois. He can be reached at email: sanjeevbhatia1@gmail.com.
- David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group www.ojmgroup.com. You should seek professional tax and legal advice before implementing any strategy discussed herein. He can be reached at mandell@ojmgroup.com or 877-656-4362.
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Wealth Protection Planning for Orthopaedic Surgeons and Sports Medicine Specialists and the newly-published Wealth Planning for the Modern Physician: Residency to Retirement are available free in print or by ebook download by texting OT20 to 47177 or at www.ojmbookstore.com. Enter code OT20 at checkout.
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