Is Happiness More Important Than Money?

Is Happiness More Important Than Money

Last week, I saw a very interesting personal finance story. If you haven’t seen this, then take a guess who this story is about. This person is an entrepreneur, hedge fund manager, and investing guru. Here is their asset allocation.

  • 50% in cash
  • 40% in U.S. index funds
  • 5% in international index funds
  • 5% in gold and crypto

Wow, 50% cash allocation! That is extremely conservative. I’ve been an investor since 1996 and I never had a cash allocation that large. I always put any extra money to work ASAP. In my opinion, cash is the worst asset class to hold. The interest rate is so low that you’ll lose purchasing power every year. This is especially true in 2022. My savings account gives me 0.1% interest this year. Even the 12-month CD gives only 0.6% interest. That is dismal. Meanwhile, inflation is 8.5%! Any cash in my saving account will lose over 8% of its purchasing power in a year.

It just doesn’t make sense to keep a lot of cash in your portfolio. I only keep enough cash to pay the bills plus a modest amount for an emergency. Our emergency fund is about 3 times our monthly expenses. Anything extra is pushed into our Roth IRAs, I bonds*, investment accounts, and real estate crowdfunding. This way, our money works for us. Having 50% in cash seems crazy to me. Why would an investor do this?

*I bonds are inflation-protected US government bonds. For bonds issued from May 2022 to October 2022, the interest rate is 9.62%! That’s risk-free and amazing. You can buy $10,000 of I bonds per year from Treasury Direct if you are a US citizen, US resident, or a civilian employee of the United States. You can also buy I bonds for your children. It’s a great deal.

Happy Life

Did you guess who this story is about? It is Jim Cramer, the famous investing guru on CNBC. Check out the interview. It’s less than 2 minutes long. Isn’t it ironic? He tells the public which stocks to buy, but he invests very conservatively in his portfolio. It turns out his wife wanted financial security and that meant cash to her. She told him if they’re partners, their financial decisions must be 50/50. She wanted her half to be in cash. So cash became the biggest position in their portfolio. Jim Cramer says he’s happily married and there are bigger things in life than money. Happiness comes first.

Still, that is a bit extreme. Jim Cramer is worth $100 million dollars. 50% of that is $50 million. With 50% in cash, they’ll lose over $4 million dollars in purchasing power to inflation in 2022. That’s a lot of money to throw away. Well, their index fund allocation probably will lose even more this year, but stocks will recover at some point. Cash won’t ever recover its value. When inflation takes a bite out of your cash position, that 8.5% is gone forever.

Jim Cramer chooses a harmonious family life over more money. He’s already wealthy so happiness is more important than money to him. What’s 4 million when you already have 100 million? He also makes $30 million per year. He has plenty of options. In addition, he is 67 years old this year. They should be a lot more conservative than younger folks.

RB40 portfolio

In contrast, our RB40 portfolio has less than 1% in cash. I’m getting closer to 50, but I don’t plan to draw down our retirement fund any time soon. We still have plenty of time to recover if something goes wrong. Well, 2022 has been a pretty rough year for the world and the stock market. It can be nerve-wracking to see the Dow Jones index drops 1,000 points. However, we lived through many crashes and we are in it for the long haul. The stock market will recover and I will keep investing. By the time we’re 65, the stock market will be a lot higher than where it is today. That’s when we plan to start withdrawing. Our asset allocation probably will be a lot more conservative then, but I won’t put 50% in cash. That’s too much.

Fortunately, Mrs. RB40 gives me free rein on handling our investments. I invest for the future and keep her updated on how our portfolio is doing every month. Her retirement account at work is invested more conservatively. Everything is in the 2040 target-date fund. It’ll automatically adjust to be more conservative as the years go by. She understands that investing in the stock market is the best way to become wealthy.  

Here is a short guest section from her.

Mrs. RB40’s input

I feel like Joe is writing this piece just for me. There was a time when I was very concerned with wanting to have $50,000 on hand in cash, mostly for emergencies. I’m not sure exactly where I came up with that number. Many blog commenters wondered about that, too. I have no rational explanation. I did not have any investing experience and previously dealt solely in cash. Perhaps it was the idea of a high enough even number that appealed to me, along with accessibility.

I’m perfectly happy with Joe investing for the whole family. I trust his knowledge and he researches everything; he doesn’t just wake up one day and make decisions on a whim. Though at the time he made his ‘retire by 40 decision,’ I thought it was a whim. While I don’t understand every single thing about our asset allocations, I have enough knowledge to know why we’re investing, in what, and how. Now I’m much more comfortable with only having 3 times monthly expense in cash instead of a lot more. When asked if I would prefer to have more cash, my visceral reaction is yes, for the reasons above. Cash is something tangible that I can feel. But I also am fine with less.

Earlier this month, Joe told me that we lost $xx0,000 from our net worth so far in 2022. I can’t remember how I reacted exactly but Joe thinks I rolled my eyes and sounded bored with the number. Maybe I’m used to it by now? I do remember the first time I looked at a status report and saw that our net worth went down by a similar number and I got really worried. Having a downturn of that many zeroes did not sit well with me and I couldn’t breathe. But apparently, monitoring one’s net worth rise and fall over the years is part of investing. As long as the general trend is upward, right?

Wrap up

I was surprised to hear Jim Cramer keeps 50% of his portfolio in cash. It is so unexpected because I would never do that as an investor. However, I can see why he did it. Having a happy home life is worth much more than money. They’re already wealthy so a few million dollars extra won’t make a difference in their lives. His wife sleeps better with her half in cash. That’s what counts.

On the other hand, I would try to convince my wife that putting all her money in cash is a bad idea. The fact is she will lose a lot of purchasing power every year to inflation. In the long term, investing is a much better choice. If that doesn’t work, then she might have certain unconscious beliefs about money. Why does she need to keep all her money in cash when she knows investing is better?

Here is a good quiz about money scripts. These are unconscious beliefs about money. It only takes about 5 minutes to do. It’s a neat quiz. If you’re doing something illogical, it’s probably psychological. Figure out why you’re doing it and you might be able to make better decisions in the future.

All right, that’s it for today. I hope you’re staying in the stock market. It’s a bit scary, but it will come back. Invest now and you’ll be wealthier later. Don’t cash out!

How much cash do you have in your asset allocation?

Real estate probably will continue to perform well. We still have a housing shortage in the US and people need to live somewhere. Check out CrowdStreet if you want to generate passive income from commercial real estate. It’s way easier than being a landlord.

Image credit: Eyestetix Studio

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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23 thoughts on “Is Happiness More Important Than Money?”

  1. Hi Joe,

    I love the line “I always put any extra money to work ASAP.” Couldn’t agree more! Time in market >> timing the market.

    This is an incredible reveal about Jim Kramer. So many things that are surprising: he’s 50% cash, he doesn’t own any individual stocks (despite his fame for shouting stock tips at the top of his lungs), he has 5% in totally speculative assets like gold and crypto, and his net worth of $100M is just 3.3x his income!

    Especially regarding that last fact, I really wonder if he and his wife are financially independent without a drastic decrease in their expenses. They’d have to spend $4M or less per year (maybe much less with so much cash!) for him to “retire”, and I bet with just $100M net worth and $30M yearly income, they are spending much more than that. So the person spending $40K/year with a $1M net worth is more financially free than Jim Kramer! Ha!

  2. I hadn’t heard that Jim Cramer story – very interesting!

    I keep about 6 years of living expenses between cash and BulletShares (corporate bond fixed income ETFs). A couple of years ago, that accounted for close to 20% of our portfolio. I haven’t looked at it in this down market, but I would guess that the percentage is even higher right now.

    The reason I have it this way is to help mitigate the sequence of returns risk. I hate to lose out on the growth but I sleep better at night knowing that we’re protected against a long downturn. As time passes, I plan to adjust the cash allocation down as part of our glide path.

    A year or two ago people told us we had too much out of the market, but right now we look like we actually know what we’re doing! ?

  3. i was just thinking of something similar for a blog post. it especially applies to folks like us with no kids and no real legacy concerns. at our age in our mid and late 50’s (in my house), how much money are we really going to spend in the entire rest of our lives? i doubt that if we live another 25 years that number would be even $2million. even with inflation. we live what feels like a life of luxury right now on 60k or so. i’ve always said that with something like $5 or $10 million i would keep a large percentage in cash like cramer.

    all that being said we’re currently sitting on 40% cash and 60% stocks. i sold a bunch of funds last year and this winter in the 401k and kinda regret not paring down the growth stocks. also, our fixed income is gone away because preferred stocks do so horribly in rising interest rate environments. of course the other reason the allocation skews so high is the giant 50% haircut our stock portfolio has taken this year. we’ll do some buying at some point.

    • You got a great point. We probably won’t use $2 million for the rest of our lives. Right now, we live comfortably on about $50k/year. Of course, inflation could make that look like peanuts in a few years. Who knows?
      Oh wow, 40% cash is a lot. The growth stocks look attractive to me now. I think I’ll buy a bit when I have some money.

  4. Rather than large sums of cash I like to have access to low interest lines of credit—large ones. I borrow against my HELOC or Brokerage line of credit. It’s usually for a short-term need related to a real estate acquisition. When they say “cash is king”, they really should say “ liquidity is king” which for me included Lines of credit.

  5. Fortunately money and happiness are not mutually exclusive. We’ve got both and its a combination I highly recommend to anyone. As to cash in our portfolio we’ve got almost 15% which is close to half a million in cash. We’ve got another million in bonds. I tend to think about inflation differently. It impacts every asset class identically. If your stock portfolio is down 10% then you don’t compare that to your cash having lost 8% to inflation. Because to do that you need to add inflation to your stock drop as well. Sure the value of your cash dropped 8%, but the value of your stocks dropped 8% plus 10% for a total of 18%! I’ll take an 8% loss over an 18% loss any day of the week. Of my portfolio assets cash is my best performer right now with a zero percent loss in absolute dollars and an 8% loss in inflation corrected returns. Everything else (except for a small amount in commodities and alternatives) is down double digits inflation corrected.

    • I agree. Money and happiness go hand in hand. Half a million in cash is a huge allocation.
      You’re right about inflation. But I still think stocks and other investments will come back. They will recover their value.
      Real estate is doing pretty well so far.

  6. I remember reading several years back that Suze Orman has around 80% of her money in a low-risk bonds and treasuries. I don’t think it is related to her partner, but just that’s her own comfort level. At the time, the story was, “I’m in a different financial place than my audience.”

    It’s hard to disagree. They have tons of money and security of the money is what’s important. If you look at the super rich, Gates, Musk, Bezos, etc., I bet they have millions in some form of cash that they can get to. However, for them that’s not a lot of money as a percentage.

    While I can understand his wife’s point, I might simply say, “What if we just kept $10 million in cash?” If the market crashes to zero, can you sleep well knowing that you have $10 million in cash? I can’t imagine any reasonable person thinking, “Nope, in this worst case, unlikely scenario, getting stuck with only $10 million wouldn’t work for me.”

    • Wow, 80% is huge. Bonds don’t earn much these days even with high inflation.
      I guess at that age and level of wealth, it doesn’t matter.
      If we have $10 million, it’ll last us the rest of our lives. That’s a good suggestion.
      Jim Cramer should talk to his wife.

  7. We have more than we need in cash. I aim for 30K in my primary emergency fund (enough to last DH getting a jobloss over the summer when I am not paid), though with inflation, that’s getting a bit low and I should probably think about what our current monthly expenditures + potential emergencies would cost. But I also have two secondary emergency funds, one of which has 50K in it(!) In terms of the fraction of our net worth, not anywhere near 50%. And we no longer have a mortgage, so lack of debt is also a safe thing.

    I don’t know if this is still true, but I read somewhere that Suze Orman is mostly cash equivalents as well.

  8. Actually, holding cash right now is not a bad idea. Don’t forget that the S&P500 is down nearly 13% YTD. Cash would have held it’s value *relative* to the S&P’s decline.

    That’s a smart move, (at least in the short term) if the decline continues. Long term is a different story of course, but it could be years before asset valuations begin to rise again.

    Inflation is going to take the same bite out of the purchasing power of every dollar regardless of what kind of dollar assets you hold. Doesn’t matter if it’s stocks, bonds, or cash.

    Don’t confuse asset valuations with purchasing power. They are very different things.

  9. You ask:
    “How much cash do you have in your asset allocation?”

    Well, my Retirement Portfolio mainly in Dividend Stocks has been worth around $2,000,000 CAN. lately. I am extremely proud of myself that I have placed my money in Dividend Stocks that have done so well. At the same time, I have around $350,000 CAN in what I call my “Prosperity Account” and rests in daily savings accounts and GICs. This Prosperity Account was set up for blowing money on things such as a Porsche Boxster that I don’t need. I am really lazy, however, and have not spent most of the money for what is was intended. So now I say this cash is part of my Emergency Account which a lot of financial advisors say that one should have. Indeed, having an Emergency Account of $350,000 CAN. adds to my financial well-being (even though the money in it is “rotting” away).

    Sure, a lot of people have tried to thrash me for keeping so much money in daily savings accounts and GICs, inferring that I am stupid with my money and that my money
    is “rotting” away in these accounts. These people are the pathological critics and habitual hounding haters who are so prominent on the Internet today. Plain and
    simple, most of these people are totally broke or do not have that much money
    saved themselves. (The Internet is where these babbling bozos erroneously
    think that they are smarter than the individuals who are much richer than they are.)

    Kinda in the same vein about cash, two days ago the “Globe and Mail” had an article about the perils of the falling stock market. This was my comment:

    “Warren and I are both going to ride this one out because we have mainly invested in decent Dividend stocks that provide needs and not wants.
    Moreover, we also have a lot of cash on hand.”

    For sure, check out how much “cash” Bershire Hathaway has on its books. It’s in the tens of billions. There is a reason that Warren Buffet hangs on to so much cash. Also, check out how well Bershire Hathaway has done over the years. Warren Buffet (over 90 years old) and his right-hand man Charlie Munger (now 97 years old) know what they are doing. Results don’t lie, in other words.

    One last note: You relate this blog partially to money and happiness. As I have mentioned in several of my books, money will definitely NOT buy happiness. Indeed, there are 37 elements of happiness that money definitely “CAN’T” buy (which I list in one of my books). Having said that, having money, particularly when one is older, can certainly come in handy. It can make one’s life much more comfortable, pleasant, and adventurous if the money is used wisely.

    • Oh wow, that’s a good amount of cash in your prosperity account. I think it’s perfectly fine.
      It’s up to you to decide how much you need. We’ll be a lot more conservative as we get older as well.
      As for happiness, I think money can buy happiness. You just have to use it the right way. I’ll have to write a post about that.


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