Finding Sensibility in Giving Enough to Your Kids

Last time Cullen Roche wrote about how the birth of their daughter made him question his financial position, and what he needs to do (Read Why Financial Independence with Children is Challenging.)

As I grew older, hopefully wiser, I understood that I would not give the most ideal advice. Parents may understand other parents better.

I should just stick to giving more exposure and less talking.

The Viktor Frankl Hack >>

But the first part is something that I can comment on:

I’ve talked a lot in the past about how having kids rewired my brain. It forced me to think in a multi-temporal sense which has completely changed how I think about asset allocation. I came up with the Defined Duration strategy because I realized I had no temporal structure in my own portfolio after the birth of my first daughter. That made me sit down and quantify the time horizons in a way that gave me financial predictability not only over my lifetime, but my children’s lifetimes.

Cullen Roche

I find this interesting.

If I am a portfolio manager, my goal is to deliver returns.

I don’t care about the financial planning part of your needs. I have an investment mandate and my goal is to deliver it so that I can earn an income and good bonus.

I steer the portfolio as if it will go on forever.

But when you have a financial or life goal that you care about deep enough that you need an adequate amount of certainty, how does that impact the portfolio manager’s brain?

Cullen realize that the portfolio manager’s mental model may not be adequate to explain things.

The most important part: There is a time horizon.

You cannot assume everyone has enough time for the equity to come back from a Great Depression.

This means that the typical equity indexing portfolio may not suffice if you have a goal of money that you need in ten years time.

In my conversation with people, I realize that most don’t know, or dismiss this notion of their time horizon to when they need the money. They fail to connect the volatility of the portfolio to this.

Cullen came up with the Defined Duration strategy, where the central theme is each asset class, be it commodities, equities, cash or bonds have a “bond maturity tenor”. This is a tenor to break even on your investment at the very least.

With this, it allows us to plan.

If I have a time horizon of 12 years to when I need the money, I know what kind of investment is out of consideration and what would be in consideration.

The Struggle to Do Sensible Things and Giving Your Kids Something Decent.

But my kids also changed the way I approach problems. Having young children is very challenging and I think a lot of people go through it feeling lost or depressed. Worse, children will make you constantly consider your relative living standards to see whether other parents are giving their kids a better life.

I’ve caught myself getting depressed about these things at times, but I’ve started doing this mental hack where I ask myself a simple question – “is this an opportunity to appreciate a difficult moment I can overcome?”

We instinctively respond to difficult environments by being frustrated. The anger is the easy way to avoid solving the problem. But in Man’s Search for Meaning Viktor Frankl taught us that the environment cannot choose how you feel about it. You choose how to feel in certain environments. When we let difficult environments frustrate us or scare us we’re letting the environment dictate our emotional state instead of imposing our emotional state on the environment.

When my kids are being difficult I can choose to get frustrated or I can choose to appreciate the time I have with them and the lesson I can teach them in behaving better. When I fight with my wife I can view that as a flaw in our relationship or I can view it as an opportunity to solve a problem and make our relationship better. When I am exercising and fatigued I can choose to quit or I can see it as an opportunity to get a little stronger.

A lot of people feel depressed about the economy because life is hard. It’s hard having kids. It’s hard having two working parents. It’s hard working 40+ hours a week. But you know what? If you have kids and jobs you probably have a lot more to appreciate than you think. And even though those things might be frustrating at times they’re also constant reminders of the opportunities to appreciate the things we have around us.

Whenever I hear my friends discuss the steps they take for their kids, it makes me wonder if “keeping up with the Joneses” is the right phrase to describe things.

The bond between parents and their children may be so unique that the line between what is considered Needs and Wants become very blur.

It is good to know that you guys are not the only ones struggling with it.

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