Boredom: An Overlooked Ingredient to Financial Success

Paul Winkler: A big welcome to “The Investor Coaching Show.” Happy long weekend, those of you guys that like vacations. I’m actually looking forward to having an extra day myself.

Usually it’s a one-day weekend for me. I get Sunday and then I’m back. So it’s one of those things where I get a two-day weekend, it’s like, “Yes, this is really going to be great.” I’m loving it.

So I don’t know. It’ll be fun. I’ll probably be working outside.

I’ll probably work someplace else. I like to get outside.

Time Value of Money

So yeah, that is something that I was going to talk about today is the idea of boredom. I’ll get into that because I think there are some interesting implications when it comes to your financial welfare and boredom.

There was something interesting I was sharing with some friends of mine at the counseling center, and also sharing it with family members and anybody that would listen. I was actually sharing a clip that I got and thought, Man, this is so, so good. Why do people struggle with their finances? 

I wasn’t going to talk about that to start with, but now I’m really tempted to talk about that right now. I think it would be a good topic to get into, simply because it’s a topic that I think would be super helpful for people because that is something that people struggle with. I have older people that I deal with all the time, and a lot of them, the biggest thing that they will say to me is, “I just wish I saved more. I wish I’d started earlier.”

As I often tell younger people, every seven years you wait based on historic market returns. Every seven years, you wait seven years, that’s it. Every seven years.

You start at 32 versus you start at 25. You just put it in perspective. You start at 37 versus 32, whatever. It’s even worse, obviously if you don’t start at 25, but you start at 39 and you wait a little bit later and you actually start saving later, because you take seven years, 25 to 32 and 37, 32 to 39, and then if you wait that long, now it’s not that you’ve just cut your retirement in half, you’ve cut it into a quarter over that period of time.

So that’s the rule of 72. Seventy-two divided by your rate of return.

So if your rate of return is like the S&P 500, which is the lowest performing market segment of all historically — but incidentally, it’s funny, the thing that most people are most concentrated in — if you go back through history and say, “Okay, what area would have a lower return?” There’d be that. Other areas would be faster, but you’d have faster growth.

But if we look at that market segment and we say, “Okay, so what amount of time historically does it take for money to double?” Now, sometimes it doubles even faster than this. Sometimes it’s slower, so don’t take this as, “Every seven years, my money’s going to double.”

Don’t take it that way. That’s not what I mean by that. Some people get confused. They go, “Well, it was supposed to double over this period of time.”

Well, you had the dead decade where you had zero return, literally no return over that entire period of time.

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You say, “Well, why didn’t it double?” Well, because markets don’t do that. 

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Sometimes it’ll quadruple over that period of time. Sometimes it’ll do even more. It was up fivefold during the 1980s, fivefold growth during one decade. International stocks went up eightfold, international small companies went up 11-fold.

So it is just, you don’t know. But I want you to get the idea that waiting is a lousy thing because you lose time value of money, and that’s a big deal.

What Ages Do People Spend a Lot of Money?

Now, why do we have a struggle when we’re younger, especially? There was one study that was done. They were looking at people and spending, and what they found, and this is something that was taken off and used for a way of managing money and a way of timing the market, so to speak. This was actually used for that particular purpose.

What the guy was doing was looking at how people spend at different points in their lives. And they found that people spent the most amount of money during two periods in their life in particular.

One period of time is in your mid to late 20s. And that’s getting pushed off a little bit right now just due to circumstances, what’s going on in our world and in our economy and markets, and just in general, what we’re finding is that younger people, it’s taking longer to grow up.

You say, “Well, yeah, why?” Well, there are a lot of reasons for that, but one reason is that there is so much out there.

You’ve got so much overwhelm with all the technology and new information, and people are really overwhelmed. Many are.

And it just takes a little bit longer, just kind of to get themselves to figure out, “What am I going to do? How am I going to do it? What education do I need?

“How do I need to deal with all the information coming at me and how do I make sense of it? How do I actually take this and turn it into a career?”

There are a lot of reasons, and it’s all debatable stuff, but the point I just want to make is that people tend to spend more money when they first get themselves independent and they start to get out there in the world. They’ll spend a lot of money at that point in time.

The other point in time that they tend to spend a lot of money is in their mid to late 40s. Yeah, it’s usually been like age 43 to age 46 is what they found in the research. So people tend to spend lots of money at different points in their lives, and the reason being in your 40s, because you’re at the peak earning years and it’s kind of fun. You’ve been waiting all this time to get yourself established in your career and really start to live life, and now you arrived, you got there, and now what we want to do is we want to go out and live a little.

So we buy the biggest house usually that we’ll ever live in, at that point in time. People typically buy nicer cars. They kiddingly say that you might have a midlife crisis or something like that.

There’s all kinds of debate as to whether that’s real or not, whether people really do have that existential crisis in their mid-forties.

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But you do have that aspect of going, “You know what? I want to show other people that I’ve arrived and I’ve done well.” 

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And quite often, we’re trying to perform for people that we went to high school with when we’re trying to say, “Hey, look, I did okay. You picked on me when I was little, but I turned out okay,” so we tend to spend a lot of money at that particular point in time.

Spending Out of Boredom

Now, another reason we tend to spend a lot of money, quite frankly, is just plain boredom. Now, Arthur Brooks actually is somebody I’ve talked about here on the show before because I really like his book “From Strength to Strength,” and he talks a lot about where we go through two stages in life.

The first part of our life, we have fluid intelligence rules. And fluid intelligence is where you are using your mind. You’re trying to achieve, you’re trying to move up in the world, you’re trying to accomplish something, you’re being creative.

Maybe you’re in some kind of an industry where creativity and inventing something new or developing new processes or improving processes is important. Well, that’s where you’re going to be really good at that is that particular age in your 20s, especially now that starts to wane, starts to drop off. At about age 45, it drops off pretty significantly.

And then the idea being that what you replace it with is wisdom. Now wisdom is crystallized intelligence, and the idea being that I am going to take the things I’ve been through in life, the ups and downs, and especially the downs. We learn a lot more from the downs.

Matter of fact, if you look at testing, if you look at people that go through courses and do studies and engage in class work, what they find is that when you’re struggling on the tests, the pre-tests that you’re taking, let’s say you’re doing practice tests for something you’re taking, you learn a whole lot more by the mistakes that you make than when you get it right. That’s true of all of life.

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That’s just the way stuff works: We struggle, and we learn. 

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Now, Arthur Brooks talked a lot about how people try to live the second half of life like they did the first. And in the first half of life, when you’re going through and you’re doing things, you’re trying to create and you’re trying to solve problems, and you may be really good with math, you may be really good at recall. People beat themselves up because “I can’t remember the stuff that I used to remember.”

I hear that all the time. And that’s just the way it is. Our brains, yes, they shrink, but not enough for us to block out all of the stuff that we have.

It’s just that our brains change as we get older. That’s all there is to it.

So Arthur Brooks said that we want to pay attention to this when we’re living our lives and when we’re looking at our future self and how we run life, we want to pay attention to these things. So really good stuff.

The Good Side of Boredom

But then he did this thing on boredom, and this is so interesting because — well, I’ll talk about why it’s interesting after I play this clip. Hopefully, I’ll be able to make this work because this is literally, I’m playing this straight from a YouTube video, so let’s see if we can pull this off. All right, is it working? Let’s see.

Oh, is it not working? Is it not pulling up? Well, we’ll see if it pulls up. But anyway, so what he’s talking about here in this video, let’s see if I can get this together.

Arthur Brooks: You need to be bored. You will have less meaning and you will be more depressed if you never are bored. I mean, it couldn’t be clearer.

PW: Yeah. You’d be more depressed. Interesting.

AB: Let me give you the good side of boredom in general. Boredom is the tendency for us to not be occupied otherwise cognitively, which switches over our thinking system to use a part of our brain that’s called the default mode network.

That sounds fancy. It’s really not.

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The default mode network is a bunch of structures in your brain that switch on when you don’t have anything else to think about.

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PW: You’re cutting the grass.

AB: You forgot your phone, you’re sitting at a light, for example. That’s when your default mode network goes on. We don’t like it.

My colleague in the psychology department here at Harvard, Dan Gilbert, he did experiments where people had to sit in a room for 15 minutes with instructions to do absolutely nothing, and there was nothing in the room to do except there was a button in front of them they could push, and if they did, they gave themselves a painful electric shock. Sit there bored, or get a shock.

A big majority of the participants gave themselves shocks instead of thinking about nothing. We don’t like boredom.

PW: The article he is referring to is called “Just Think: The Challenges of the Disengaged Mind.” Can you even imagine that? People would rather go through a painful electric shock than have nothing to do.

Spend More Time Contemplating

Now, what are the implications of this? I don’t know how many of you people out there, I’m sure most of you have Amazon accounts and you buy stuff, you get out there. Retail therapy is a thing because that is something we tend to do just to make ourselves feel better.

“I’m bored. I’m going to go buy something.”

And that walks you through why this happens. What’s really going on here? We do. We hate boredom.

It drives us crazy to be sitting there with nothing to do. And you go, “Why? What’s going on here, and how do we get ourselves around this?” Well, number one is recognize that it’s a thing.

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Recognize that when we’re bored, we do want to try to fill the time with something, and recognize that there is a benefit to having nothing to do. 

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Now, this is hard. I’m going to raise my hand and say this is the hardest thing for me to do. I hate sitting there with nothing to do, but I have recognized that I have to actually build in things in my life, my personal life.

People ask me, they ask, “Well, Paul, why do you do this?” They’ll ask me why I do certain things around my house instead of having somebody else do it. I was like, “Because it’s mindless activity, and it’s really good for me because I come up with some great ideas for this radio show when I’ve got absolutely nothing to do.”

Matter of fact, the best ideas I come up with and have come up with were when I have been completely bored out of my mind. So how do we do this? What do we do?

AB: Default mode network is mildly uncomfortable because it sends you to the types of questions that you can’t get your mind around, you can’t get your arms around. Well, that’s a big problem. That’s a doom loop of meaning. If every time you’re slightly bored, you pull out your phone, it’s going to get harder and harder for you to find meaning, and that’s the recipe for depression and anxiety and a sense of hollowness.

PW: So true. Now, I have talked about this before, but I did a commencement speech for one of the local universities one time, many, many years ago, and I was asked, “Hey, what do you want to talk about?”

I said, “How about if I just talk about the regrets that seniors have, if they could live their lives over again? You’ve got these young people coming out of college that don’t want to live meaningless lives. How about if I just talk about what people looking back on their lives would do differently if they could?”

And that was what they said, they said, “I would spend more time contemplating.” That’s one of the big regrets. Now, “I would’ve taken more risk,” was another one, and, “I would do things that would actually live, survive beyond me.”

And I also added that they would have continued in the learning process. They would’ve continued to grow. Because if you’re not going forward, a big thing that I believe is if I’m not going forward, I’m going backward.

So constantly. And that’s great for your mind. For people that are worried about cognitive issues later on in life, continuing to learn is a huge deal to getting around that. So anyway, I think that’s really important what he’s saying right there.

You Need To Be Bored

AB: I get it. You don’t want to be bored. You need to be bored. Be bored more.

Tomorrow, when you go to the gym in the morning after you wake up, don’t take your phone. Can you handle it?

PW: Yeah, good luck.

AB: Not listening to a podcast while you’re working out, just being in your head? I promise you, you’ll have your most interesting ideas while you’re working out without devices. It’s probably been a long time since you’ve done that.

Commute with nothing, not even the radio. Can you do that?

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Start getting better at periods that are 15 minutes and longer of boredom and watch your life change. 

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Number one, you’ll be less bored with ordinary things in your life. If you get better at the skill of boredom, you’ll be less bored with your job. You’ll be less bored with your relationships. You’ll be less bored with the things that are going on around you.

PW: It’s like building a muscle.

AB: More importantly, you’ll start digging into the biggest questions in your life. Purpose, meaning, coherence, significance. And who knows? You might just get happier.

PW: So I think that’s really, really good stuff. And I think for a lot of people that struggle with their finances, recognizing that they’ll tend to spend money just because they’re bored, or I see people that search for significance.

And this is something I see a lot: They will actually get projects and they’ll engage in projects, and they’re money-losing, like money-losing businesses, for example. They will think, Hey, I’m going to do this business.

They get all excited. They do very little research. They get pie-in-the-sky ideas, believing that somehow they’re going to hit it. Their ship is going to come in with this new idea.

And quite often, they’re trying to get significance in all the wrong ways, and it ends up hurting a lot of people in their lives, is what I found. I remember when I cold-called businesses, this is going back 35 years, really literally 35 years, when I started in this business.

I would cold-call businesses, and you know the thing that would happen is people would be at the counter at these companies trying to sell me on, “How can I raise money for this capital for this great idea I have?” And I’d sit there and be shaking my head, going, “I’m supposed to be selling you something, and you’re trying to sell me on the idea of raising capital for your business that is just a terrible idea, by the way.”

But that was kind of where I learned so much, and for me, just going cold-calling and talking to people on a regular basis was such an educational experience, and I just found that people do kind of live lives of quiet desperation, as Thoreau said. So maybe just kind of take a little bit of what I said here, and maybe that’s something for you to chew on, is to recognize that maybe boredom isn’t a bad thing.

Maybe you can spend a little time with nothing to do, and maybe a little bit more meaning will enter your life. Food for thought.

Increasing Earnings

PW: All right, back here on “The Investor Coaching Show,” Paul Winkler. Paulwinkler.com is the website.

And there was something, as a matter of fact, speaking of the website, I actually had to peruse my own website this morning because of an article I saw in MarketWatch, and it was regarding equal-weighted S&P 500 funds. I hadn’t seen this talked about in quite a while. I’m thinking, It’s been a while since I’ve seen this. 

Well, the article is entitled “Equal-Weight S&P 500 Sees Longest Winning Streak Since 2021 Amid September Rate-Cut Expectations.” Okay, so why would that be the case?

Well, number one, if you look at interest rates, you say, “Well, when people pay higher interest rates, it’s a damper on you, right? It’s a damper on your budget.” If I’ve got to pay higher interest rates, let’s say you have a car loan or you have credit card debt or something, anything like that, you pay higher interest rates.

That’s kind of a drag, right? Because now you’ve got more money coming out for that and you have less money for other things that you really want to do. You’re paying interest to somebody.

Same thing with companies. They’ve got to pay interest when they borrow money.

Who borrows more money? Large companies or small companies? And the answer would be, ding, ding, ding, small companies.

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They’ve got to pay more interest because they’re smaller and they typically have to borrow more money. 

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Now, if we look at what it takes to get earnings, you have sales of stuff, and you have your costs of the goods that you’re buying to put together to make your wages, to make your vehicle or whatever you make, whatever thing that you manufacture, let’s say. You’ve got the cost of the things that you have to buy that go into the manufacturing of that thing, let’s say.

Or you have employee costs, and you have expenses for your light, heat, and air and all that stuff, telephones. So all these expenses can be in there, but another part of your expenses would be interest if you’re borrowing money.

Now, if you’re not borrowing money, that’s not a big deal. If you are borrowing money, and that cost of borrowing goes down, as would be the case with smaller companies, smaller companies would have a big hit, or they could have a bigger hit to their earnings if a cost of doing business has gone down.

So when those earnings go up, that creates more potential for returns because now all of a sudden, my earnings going up will actually be reflected in my share prices because typically companies sell for a multiple of earnings. Well, that’s exactly what we’ve seen recently.

Equal-Weight Indexes

Now, an equal-weight index, the thing that you’re dealing with when you’re dealing with, let’s say, a large company stock index, like the S&P 500, is that most of your money is in the bigger companies: the Apples, the Amazons, the Microsofts, the Nvidias, and those types of companies. Most of your money is in just those stocks.

So when you invest in an index fund that is weighted based on the size of the companies, the bigger companies are going to get more of the money, and therefore, now you’re engaging, you’ve got more risk. And a lot of these growth funds, I was actually talking to a guy this week and if he’s listening, hey, how are you doing, man?

But he was talking about his mutual fund. He had a State Farm Growth Fund, and I said, “Let me just show you how to analyze your fund.” And he goes, “Oh, okay. How?”

And so I showed him how to go to Morningstar, and I said, “Oh my gosh, do you realize that one stock makes up 12% of your mutual fund?” And he was like, “Whoa.” And I said, “And by the way, if you look at the past 10 years, investing over the past 10 years in this fund, if you invested $10,000 in this mutual fund 10 years ago, your accumulation should have been …” I think it was $6,000 or $7,000 more.

“You should have had $6,000 or $7,000 more on a $10,000 investment, which is huge.” And the reason is because of A, weighting. Another one is how they manage the active management in portfolios, buying and selling and market timing and stock-picking, all that junk.

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The point here is that with a lot of funds, people don’t recognize how concentrated they are. Hence, what became popular is this idea of equal weighting. 

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“I’ve got 500 companies in the S&P 500, I’m going to put one five-hundredth of the money in Nvidia, one five-hundredth of the money in Microsoft, one five-hundredth of the money …” And you just go down the line of all the companies in the S&P 500.

“And now I will be equally weighted. I won’t be so dependent upon what happens to those big tech companies.” That’s the idea.

Hidden Expense of Equal-Weight Indexes

Well, funny thing was, it says here that it sees its longest winning streak since when? 2021. So about four years ago.

Well, funny thing, I’m sitting there going, “You know, it’s funny, I hadn’t heard anybody talk about these funds,” and I’m not a big fan of this type of investing, by the way, because it’s too expensive. And it’s not a visible expense. It’s a hidden expense.

If I have a mutual fund that divides between 500 companies, now I have to make sure I do trades and watch those trades really carefully to make sure that the fund doesn’t get out of balance, that there’s more than one five-hundredth of the money in one stock versus another. Well, that means I might have to sell this and buy this to keep it in balance, you see?

Now, that is a hidden expense. It won’t show off in the management fee. Now, they’ll charge higher management fees to manage it, so that’ll be another expense.

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But you also have that trading cost, which is hidden from sight, and you have to deal with it. So I’m not a big fan of doing it that way. 

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I’m a bigger fan of taking a fund and not necessarily cap-weighting it, capitalization weighting it. So I’d have a big stock fund that’s not necessarily capitalization weighted, value funds, and especially small-cap funds. It’s really super important to not do that with small funds that are investing in smaller companies because you’re overweighting big companies.

Where do I expect more return? Smaller companies. So having a small-cap fund, small capitalization fund, that’s overweighting big companies is kind of pointless.

But hey, that’s what fund companies do. As a matter of fact, I was talking to my staff today, and we were looking at the difference in return between Vanguard funds and the funds that we use to capture asset classes like small and value, and it’s pretty significant, 3% to 4% difference of return in, for example, the month of August.

So it can be a pretty big difference between them, and especially when you have those small caps doing better, that’s what’s going to happen. That cap-weighting can really get you.

Focusing on Past Performance

But anyway, so this is talking about doing this, and I’m thinking, Well, when’s the last time I talked about this and told people not to do it? And the answer was that the last time I told them not to do it was January of 2022, which is literally the last time they were telling people that you ought to invest in this way, and now we’re sitting here four years later and it didn’t work.

In other words, they were wrong. Because a lot of times I go against the grain on this show and I have to say, “Don’t fall for this junk.” I have to go against the grain because our instincts say, “Go toward pleasure, go toward that which just did well, and forego that which just did poorly.”

And that’s exactly what people did, back in 2021: People were all excited because small caps had been doing well, and these equally weighted indexes actually did better than cap-weighted indexes. So one of the things that I try to do here on the show is go, “Hey, look, watch this stuff because it’s gimmicky. It’s really gimmicky, and they will only promote it in the media typically after it’s done well.”

It’s like closing the door of the barn after the horse gets out. It’s too late. It doesn’t make any sense to do that.

But recognize that it is very, very typical of the financial media and the investment world at large. Why? Because if I am trying to sell you as an investment person on a fund or a mutual fund manager or anybody, when you’re looking at how the investment world works, if I’m trying to sell you on something, if I show you great past performance, it is enticing.

And this is why I spend so much time educating, because I’m going to have people do things in their 401(k)s and their retirement plans. I’m going to be choosing investments, and I’ll be choosing things not based on short-term past performance, but how it puts the portfolio together so that we actually focus on a risk-return relationship, both of those two things.

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Because if I’m totally focused on past performance, I end up with a lot more risk, and ironically, typically lower returns when I do that. 

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Not a combination that we want to pursue.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.