Lessons about wealth management from a 2,000-year-old philosophy
Click Here to Manage Email Alerts
Stoicism has enjoyed a significant resurgence in popularity in the last decade. It is a school of Hellenistic philosophy founded by the thinker Zeno in Athens during the early third century BC.
Stoicism is probably best known for its most famous follower, Roman emperor Marcus Aurelius.
Although many of our country’s historical figures, such as George Washington, Thomas Jefferson and Ralph Waldo Emerson, studied Stoicism, this philosophy has become popular today and is embraced by business leaders and public figures. This increasing interest has led to some best-selling books on the subject, including The Obstacle Is the Way and The Daily Stoic. With its increased popularity, many physicians have been exposed to this philosophy, as well.
In this article, we apply five Stoic practices or maxims to the challenge of managing wealth, with the goal of making a 2,000-plus-year-old philosophy relevant for physicians as they wrestle with financial issues.
The 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 them enough to truly appreciate that they 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 attached to possible disastrous events are dissipated, and one feels more settled in the present, knowing that you are prepared, no matter what life throws at you.
The valuable practice of premeditatio malorum has a number of applications to wealth management:
Truly considering the “risk” part of the risk-return calculation when investing. It is easy to simply nod one’s head when discussing the risks of certain investments and then overreact when they lose value. A sincere upfront consideration of risks, including picturing what one’s reaction will be if assets lose value, can prevent future panicked reactions and prove invaluable during market downswings.
Embracing the importance of 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.
Incorporating wealth protection planning using insurances and legal tools. The consideration of what can go wrong should extend beyond investments to other areas of risk in wealth planning, from the physical destruction of property and being sued to becoming disabled or dying. The key to this exercise is not to dwell on these risks in an unhealthy manner, but, instead, to recognize them, think about their likelihood and take reasonable actions to mitigate their damage. Through insurance, asset protection and estate planning, this can be accomplished effectively.
Luck: Preparation meets opportunity
“Luck is what happens when preparation meets opportunity,” wrote Seneca, a leading Roman Stoic philosopher who died in 65 AD.
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 “good luck” is often preceded by a capital strategy, asset allocation model and even due diligence on a particular investment. While these processes 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 you have made in your own wealth planning. While luck was likely a factor (is anything ever a “sure thing”?), so likely was diligent preparation.
More imagined than real suffering
“We suffer more in imagination than in reality.” — Seneca
The wisdom in another 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. Consider how many times you have argued with someone in your mind even though that argument actually never took place.
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 reality of the markets. In fact, investing with emotion can be detrimental, with numerous studies, many of which are described in Mandell’s book Wealth Management Made Simple, demonstrating how many retail investors get burned by such thinking and their attempts to time the market.
If investors can remove their inner dialogue from the process of investing or work with a dispassionate advisor to counteract such thoughts, they will typically experience 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.
Heraclitus’ quote recognizes that everything changes over time, and nothing is permanent. This recognition is crucial in long-term financial planning, which 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. Instead, dynamic planning should involve a software-generated financial model that can be re-examined, tweaked and updated on an ongoing basis. In essence, one’s financial planning should reflect changes as they 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 significant part of their wealth planning, especially as they approach retirement and beyond. For many, the psychological benefits of making charitable gifts is much greater than if they spent the money on themselves – an effect that has been confirmed in many studies. While Marcus Aurelius may have been referring to a belief in the afterlife prevalent in ancient Rome, 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.
The Stoic philosophy has endured since ancient times because of its insightful wisdom. Many of its lessons can be applied to wealth management, a few of which we explored in this article. If these insights sparked an interest, we encourage you to learn more about the fascinating Stoics and ways that Stoicism can guide your wealth planning decisions and remain focused on long-term financial goals.
References:
Wealth Planning for the Modern Physician and Wealth Management Made Simple are available free in print or ebook formats by texting HEALIO to 47177 or at www.ojmbookstore.com. Enter code HEALIO 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, Ill. He can be reached at 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.