The two posts this weekend drew out a couple of interesting subsequent threads one of which being how much is enough. Enough to entertain any sort of game over for taking on volatility typically associated with a "normal" allocation to equities.
My initial response, short as it was, is that this question is quite philosophical and while it is there are also many practical considerations to think about as well.
The first practical consideration is that many people (all people?) are down from their highwater marks and there is a
just get me back to even mentality at work. If I can only get back to even then I'll....so the mind may be more open to game over than it otherwise would. Figuring out how influenced you have been by this line of thought could be huge and be the difference between lagging a bull market and missing it altogether. Most investors are unlikely to really beat themselves up if they go up 150% in an up 200% bull market (remember Hussman says the average bull market is 180%). Up 10% (compounded interest maybe) in an up 200% bull market would be a different story.
The other big practical consideration is not as psychological but is very difficult to predict which is one-off financial events. Maybe your bills (including various insurances) are $3000 a month. Maybe you need another $1000 for walking around for the month (the occasional dinner out, a round or two of golf for those so inclined, gas for the car and so on). Then what might you need for taxes? What about travel? Ok after that it gets far less predictable.
I've said before, look at your Quicken register for the last twelve months. How many vet visits, car repairs (oil change, brakes, tires, worse),
Home Depot (NYSE:
) type fixits or wedding invitations do you see and those are the small things. Then every so often there will be bigger things. This year summer my wife broke a tooth, what if something horrible happens to the roof or plumbing? And there are obviously more serious things than that and all of it is unpredictable. You may get lucky with these things or not there is obviously no way to know.
As for the philosophy, there were plenty of comments but I don't think they the came at it in the way I would. Most people might come at this wondering do they have enough money. People associate having a lot of money as being the way to mitigate money problems and of course the thinking is correct but it is not the only way to come at this. And in fact accumulating a lot of money is quite difficult to achieve.
The other part of the equation, other than how much do you have, is how much do you need to cover your lifestyle? I would submit it is much easier to choose a modest house, drive a car for ten years (
Toyota (NYSE:
) and
Nissan (Nasdaq:
)), not buy $300 shoes, realize that clothing can be bought at
Costco (Nasdaq:
), don't use credit cards (other than for the cashback or rewards programs), don't buy every gadget, learn how to fix things yourself, take lunch to work and so on. Keeping the predictable expenses low would seem to be much easier to do because it usually just depends on self-discipline. The self-discipline required may not be easy but it does boil down to a person doing for themselves.
If you have a lot of money then you may not have to worry about having enough but if you have no mortgage and no car payments then you probably don't have a lot of money worries either.
