The Geometry of Wealth is an easy-to-read and practical guide to investing in the stock market. The author, Brian Portnoy, explains how financial markets work using simple math concepts such as percentages and ratios. He then demonstrates how these concepts can be applied by investors who want to make money on stocks without having a degree in finance or economics.,
Are you seeking for a synopsis of Brian Portnoy’s book The Geometry of Wealth? You’ve arrived to the correct location.
I completed reading this book last week and took notes on some of Brian Portnoy’s important points.
If you don’t have time, you don’t have to read the whole book. This summary will give you a quick overview of what you can expect to learn from this book.
Let’s get started without further ado.
I’ll go through the following points in my synopsis of The Geometry of Wealth:
What is the purpose of The Geometry of Wealth?
The goal of The Geometry of Wealth is to help you manage your money properly. This book provides both practical financial guidance and money-management techniques, as well as philosophical perspectives on plenty.
Material and spiritual planning, as Brian Portnoy points out, are inextricably linked. For genuine prosperity, concentrate on both.
Who wrote The Geometry of Wealth and when did it come out?
Brian Portnoy, an investment consultant with Virtus Investment Partners, assists customers in planning their financial futures and making informed investment choices. He’s also the author of The Investor’s Paradox, a book on investing. The Geometry of Wealth is his second book.
For Whom Is The Wealth Geometry Intended?
The Wealth Geometry is not for everyone. If you are one of the following folks, you may like the book:
- Investors and savers
- Those that want to pay off their debts
- Consultants and financial advisors
Summary of the Book The Geometry of Wealth
Introduction
Things were a lot easier back then. You remained at a decent job until you retired once you found one. The rest was taken care of by your company, who paid you a monthly pension based on your previous wage. Retirees might then sit back and enjoy their retirement.
Everything has altered in the previous three or four decades. Pension programs that were formerly substantial are no longer available, and workers must now manage their own savings. This entails taking an active part in the management of your pension fund and the investment of your funds.
The financial markets’ unpredictability may be frightening; one bad move might wipe away all of your investments. So, how do you keep track of your finances?
That’s what we’ll look at in these insights when we look at seasoned investor Brian Portnoy’s comprehensive approach to money management.
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Lesson 1: We live in a time of economic uncertainty, and we have a tendency to put our money in the wrong places.
Pension plans are a relatively new development in terms of history. They grew increasingly popular as civilizations got more financially secure in the nineteenth century.
Those days, though, seem to be over. Pension plans are becoming less frequent once again as a result of financial uncertainty.
This is due to a significant shift in the financing of pension programs. Prior to the 1980s, employers paid a large portion of the money to cover employee retirements.
Employees are now in charge of funding own retirements. In the United States, retirement is often self-funded via 401(k) investment programs.
Retirement funding has changed drastically statistically. Since 1980, the number of workers eligible for a full company pension has decreased from 62 percent to only 17 percent. Employees who self-fund their retirement via 401(k) plans, on the other hand, increased from 12 to 71 percent.
As predicted, this has resulted in insecurity. Take a look at the results of a 2017 poll conducted by the Employee Benefit Research Institute. According to this report, just 18% of all Americans anticipate to retire comfortably.
Our impulses, which lead to bad financial choices, jeopardize our attempts to save for retirement.
During economic downturns, we feel less safe. As a result, we save money. What happens if the economy falters and the stock market crashes? You sell your current holdings and put off buying new ones.
This, however, is illogical. Consider the following scenario: You don’t hurry to purchase when your neighborhood grocery raises its pricing; instead, you wait for a deal.
The same rationale should apply to the financial market. Stocks are best purchased when prices are low, such as following an economic downturn. You lost out if you didn’t purchase shares at a bargain during the 2008 financial crisis. Make sure you don’t make the same mistake again.
Investments aren’t the only way to obtain financial stability. In the following insights, we’ll look at a few methods you may utilize to get your finances in order.
Lesson 2: While we may not have complete control over every element of our financial life, we do have a surprising amount of power.
Despite the fact that financial instability is on the increase, we are not bound to struggle financially. Human minds are very effective instruments for resolving financial issues.
Brains can’t cure every problem or make us all become billionaires. They do, however, provide us with some leverage.
Let’s start by looking at our brain’s limits. In his book Thinking, Rapid and Slow, psychologist and economist Daniel Kahnemann claims that “fast thinking” is our default cognitive mode. This is an involuntary response that is prompted by life circumstances.
When you’re driving and notice someone dashing into the road, for example, you immediately slam the brakes.
This is because our brains are continually scanning our surroundings for hazards. When faced with danger, we respond quickly and largely involuntarily. We have no control over the “rapid brain,” which functions like a machine that makes choices for us.
The “quick brain” is sometimes used to make financial judgments. When you spend money you don’t have, it’s probable that your quick brain is at the helm.
Although quick thinking is one of the brain’s settings, it isn’t the only one. We also have a “slow brain,” according to Kahnemann, which helps us digest complicated facts and reason logically.
This parameter may be used to compute the yearly return on high-yield savings accounts, for example.
What does our sluggish brain have control over? We need to look at a research published in the Encyclopedia of the Social and Behavioral Sciences in 2015 by social scientists Edward Deci and Richard Ryan.
It shows that roughly 60% of our capacity to make good choices and be happy is determined by our genes and surroundings.
Many of these choices are beyond our control, but we can make around 40% of them intentionally. If you make those calls with your sluggish intellect, you’ll be well on your road to financial success!
You may be wondering what steps are required. Continue reading for the next point of view.
Lesson 3: The greatest risk management method is to minimize your risk exposure.
Blaise Pascal, a seventeenth-century French philosopher, had a unique viewpoint on two of the most pressing issues of his time: God and faith.
Faith, according to Pascal, is preferable to uncertainty since believing or disbelieving in God is a gamble. If you believe in God, it pays off. You have nothing to lose if you believe, yet it turns out he isn’t genuine. Simply said, believing is much less dangerous than disbelief.
What does this have to do with money? Quite a bunch, in fact. Minimizing risk isn’t only a smart way to approach faith – it’s also a fantastic way to approach financial choices.
A solid money management approach entails striking the correct risk-reward balance. You stand to benefit more if you take greater chances. However, if you put everything on the line, you may as well lose it all.
A excellent illustration of how this works is a startup. Consider Google or Facebook: succeeding in this business is significant. However, according to Trepoint CEO Bill Carmody in a 2015 article, 96 percent of start-ups in the United States have failed in the last decade.
Because you can’t develop financially until you take some risks, putting everything on red isn’t a good idea. What are some effective risk-taking strategies? Reduce your risk of losing money.
Consider the insurance sector. Purchasing a home implies taking a financial risk. After all, homes are costly, and they do sometimes burn down. You insure your house to decrease the danger of financial disaster if the worst occurs.
The same idea applies to investing. When you look at the world’s most successful investors, such as Warren Buffett and Charlie Munger, you’ll notice that they’re all obsessed with minimizing risk and avoiding damage.
They wait until they have a chance to attack when the odds are stacked against them. They avoid losing money by taking risks while making bets.
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Lesson 4: Create a financial strategy by calculating your net worth and establishing financial objectives.
Now that we’ve covered the basics of money management, it’s time to go into the details. Let’s start with our personal net worth, something we seldom do.
It’s quite efficient. It’s also straightforward.
To begin, total up all of your assets, including your home, vehicle, retirement fund, savings, and the worth of each item in your home. Make a single column for them.
Then sum up all of your debts. Everything from your mortgage to your credit card bills, student loans, and vehicle loans may be found here. The difference between these two columns is your net worth. Calculate this every year to get a feel of how you’re doing.
What is the purpose of this activity? You may start thinking about your financial objectives now that you have a clear picture of your present financial situation.
Knowing what you’re striving for is essential in money management. While you can’t always forecast your future demands, you can make some very good guesses based on your present goals and needs.
Let’s assume you already know you want to be able to make a $50,000 down payment on a $250,000 property in five years, or you’ve estimated how much money you’ll need in retirement.
You may design a financial strategy to attain your objectives once you know what they are. You’ll know whether you’re on track or if you need to put extra money down each month if you check this once a year.
Lesson 5: Gratitude is beneficial to both your financial and emotional wellbeing.
Financial well-being entails more than just budgeting and investing. It’s just as vital to think about the intangibles, such as practicing thankfulness. Doesn’t it sound odd? In fact, it’s very reasonable.
True prosperity entails more than just money wealth; it also entails pleasure. Why? Gratitude, according to Robert Emmons, a world-renowned gratitude specialist, is a vital component of happiness. When we are appreciative, it helps us feel wonderful.
That is something you can learn. Emmons proposes two ways to increase appreciation.
Look at what you already have first. When we feel appreciative, we are prone to compare ourselves to others. You’ll be more grateful of your place in life if you reflect on your own development rather than succumbing to temptation.
You should also understand that your achievement was not exclusively due to your hard work and skill; luck and the help of others played a part as well.
According to psychologist Kristin Layous, humility is the cornerstone for thankfulness. Thanking people, whether verbally or in writing, is a key to pleasure and joy.
Gratitude affects more than just your mood; it also affects your buying habits. You’re more prone to indulge in superfluous indulgences if you’re continually staring over your neighbor’s fence and enviously fretting about his new automobile. If you choose that path, you will be disappointed.
The secret to happiness is gratitude. If you’re grateful for the food on your plate, a gourmet supper isn’t essential.
If you’re grateful for the people you already have, you don’t need to follow fashion trends or acquire the newest devices.
Simply said, thankfulness is excellent for both your spirit and your bank account!
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Lesson 6: Simplicity always wins when it comes to financial choices.
Let’s go back to the 1840s before we get into the nitty gritty of money. A doctor called Ignaz Semmelweis analyzes a peculiar scenario at a maternity unit in Vienna, Austria. One out of every 10 women giving birth on his ward dies. In comparison, there is just one mortality per 25 women during street deliveries. What caused this to happen?
Semelweis racked his thoughts, trying to come up with a solution. With the benefit of hindsight, the answer became clear: it’s safer to deliver a baby outside of a hospital than to entrust your health care to someone who hasn’t cleansed their hands. The takeaway here is that simple responses are more likely to be correct.
The brain, on the other hand, prefers complexity. We are happy when we have more alternatives. That’s hardly surprising, given that choice equates to wealth, and abundance, in turn, equates to security. This, incidentally, explains Starbucks’ extensive coffee menu, which includes a wide range of sizes and ingredients.
These emotions are not triggered by simplicity. It is pragmatic and monotonous, leaving our minds yearning for excitement. We’d rather stare at a magnificent picture that’s been displayed at a restaurant serving wonderful cuisine while a band performs than go to a museum. Complication attracts customers.
Making financial judgments based on this criterion, on the other hand, may be devastating. That’s why it’s best to keep things simple – literally. Just keep three basic rules in mind.
To begin, purchase at a cheap cost and sell at a high cost.
Second, diversify your investments rather than putting all your eggs in one basket.
Third, stick to your guns and avoid jumping from one investment opportunity to the next.
Let’s take a closer look at the third rule, which isn’t as self-explanatory as the others.
When you invest, you are almost always either lending money to a business or purchasing stocks. If you’re looking to make a long-term investment, stocks provide the best return on investment.
Bonds, on the other hand, are a better choice for a short-term investment. As a consequence, all that’s left for you to do now is choose a firm with a solid product!
Lesson 7: Investing isn’t an exact science, and successful investors recognize that they don’t know everything.
Finance is stated to include intricate equations and algorithms that make complex market movements comprehensible and predictable. However, it is not how investments operate.
Investing isn’t an exact science, contrary to common assumption. This is really a positive thing, contrary to common assumption, since it means you don’t need five PhDs to produce money.
A wonderful example is Charlie Munger, a well-known investor. The most an investor can do is choose assets that have a high chance of succeeding — investors, according to Munger, don’t know the exact result of their investment selections.
Although a billionaire stock market investor may seem small, it is a smart strategy. When it comes to investing, you must recognize that you are really playing a “game” dictated by chance. Staying modest and realistic is the greatest way to prevent losses and make the best judgments.
In reality, this means admitting that you aren’t an expert on everything. That may be difficult, particularly if you’re a high-profile investor with access to a wealth of financial data.
Despite Hollywood’s portrayal of Wall Street as a brazen, arrogant environment, the smartest investors realize that humility triumphs over arrogance.
What is the rationale for this? Consider it this way: If you realize that you can’t foresee every event in the financial markets, you’ll be far more likely to have the patience to remain with your investments.
That method is preferable than throwing all of your money into the next financial trend.
Lesson 8: While the average return on stock investments is predictable, the range of potential outcomes is substantially greater.
Your mother or a neighbor will most likely tell you that your investments will provide a 10 percent return. Because investments follow a fairly predictable pattern, this is a common sense knowledge of how they function.
According to statistics gathered by the Ned Davis Research Group, the average return on stock investments is about 10 percent.
Due to changes in business performance, the average return on an investment increases somewhat higher than that figure over the first two years. The influence of a short-term event is usually larger than that of a long-term one.
Isn’t it true that we may anticipate a 10% return on our investments? No, not at all. Something vital is missing from the diagram: probability. As a result, misleading expectations emerge. Let’s have a look at why that is.
In actuality, a broad variety of investment outcomes are feasible. When interest rates rise and fall, you’re far more likely to experience a sequence of highs and lows than a continuous 10% return. This is not reflected in average rates.
Take, for example, the stock market. It has the ability to expand at an incredible rate – in recent years, it has risen by 167 percent! It might also swiftly deteriorate. In certain years, stock markets have dropped by 67 percent.
To put it another way, there is a broad spectrum of favorable and bad effects, particularly in the early phases. The good news is that if you persist with your investment for a long time, this range will narrow.
Over the long term, you’re looking at a range of 0% to 20%, while modest losses may never be fully ruled out.
It’s crucial not to get too enthused about your stock’s first ups and downs in value. Things are expected to level out after a few of decades.
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Final Thoughts
When it comes to money, keep a cool mind and realize that luck plays a part in the markets.
Being conscious of this and being modest are crucial to becoming a good investor, which is all about reducing risks and avoiding poor investments.
After that, you should invest in basic, dependable schemes and stay with them over time to increase your chances of success.
Additional Reading
If you enjoyed The Geometry of Wealth, you may be interested in reading the following book summaries:
The Geometry of Wealth is available for purchase.
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