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Is Your Happiness Portfolio Diversified?

You've heard the saying "money can't buy happiness", right? While it's true that having a ton of money is no guarantee of happiness, it is something you can invest either short-term or long-term to improve your life.

It's time to start thinking about the emotional returns of your financial decisions alongside the numerical ones. Although a diversified investment portfolio is important to your financial plan, a diversified happiness portfolio is key to a well-lived life.  

So what do I mean? I run across a couple of different types of people in financial planning. At one end of the spectrum are people who live for today. They are very focused on the present - travel, eating out, shopping, etc. Their financial goals consist of investing in their happiness today. They often prioritize near-term financial goals at the expense of long-term goals.

At the other end of the spectrum are those who tend to over-invest in future goals. They want to save for retirement, leave a legacy for their family, and end up decreasing happiness today in the hopes of increasing it later. They may be afraid of taking any risk for current happiness because the uncertainty of the future makes it impossible for them to feel secure in their decisions.

You would probably think that the second example would be the one I think of as the "right" way to be. But it's not. In my opinion, either end of the spectrum has more negatives than positives. Let's run through some of the examples and then see how you can get started balancing your portfolio.

Overweighted in Present Happiness

These folks are most likely to say you only live once (YOLO). The good thing is that they recognize that short-term happiness investments have a high likelihood to turn out how they expect. They know what they get out of a nice dinner out, a weekend trip with friends, or a new purse. The investments are often smaller, the risk of loss is smaller, and the time frames are short.

The downside is that if you spend all of your time focused on short-term, sure-thing investments, you often don't have resources to invest in longer term goals like buying a house, saving for college, or building a secure retirement. You may think you have plenty of time to do that later.

But what if you don't? What if you lose your job, life doesn't turn out how you thought, and you can't recover later? The beauty of planning for those long-term happiness items now is that you have plenty of time to recover from losses, your investments compound over time, and you get slight happiness and satisfaction today from anticipating the future. 

Overweighted in Future Happiness

Those at the other end of the happiness spectrum are the ones who are always seen as most responsible. They fund their retirement accounts, keep debt to a mimimum, plan for large purchases in the future, and feel pride in providing a secure future for their children. So how can that possibly be negative?

The flip side is that they may not be enjoying life today. Their need for security doesn't allow them to value today's happiness as much as tomorrow's. There is a lot of fear that is driving them. They worry that investing in today cannot possibly allow them the future they want. What if I start a business and it fails? What if I change jobs and it doesn't work out? What if I let up on the future accelerator and take more time to smell the roses?

The lure of these future investments is that they seem secure. If you do X, then you will get Y. The reality is that the further out you are planning for, the less certain you can be of the outcome. There are just too many variables beyond your control. The economy could tank just as you retire, your child could decide they want to start a business instead of going to college, or you could end up in such poor health down the road that you can't enjoy what you've accumulated. Once you get there, it's too late for "if only..."

The Balanced Portfolio

Think of your life like a timeline. Plot your financial/happiness goals along that timeline. If all of your goals are clustered in the next 5 years, force yourself to put some in the 10 and 30 year buckets. If everything you are planning for is more than 10 years out, force yourself to add some shorter term goals - and think about happiness in addition to security.

Now look at your resources like time and money. They are not unlimited. You are going to have to make trade offs to allocate something to all of your goals, but do it. Don't let others' judgement either determine your goals or how they should be prioritized. Allow yourself to consider the happiness return. Don't assume that longer term goals are more likely to bring security. Don't get discouraged if you can't allocate as much as you like to your future. Give yourself a pat on the back just for going through this exercise!

Maybe money can't totally buy happiness, but it can contribute significantly to it. As in investing, a diversified approach will bring better returns over time with less uncertainty. If you fall at either end of the spectrum, get real with yourself and make a change! Your happiness will thank you.