The Stress Premium: Looking Beyond Investment Returns

I’ve been thinking a lot recently about something that comes up occasionally in FIRE circles, but I don’t think we put nearly enough value on... the faff factor in different asset classes.

We spend an awful lot of time comparing returns. Is property better than the stock market? Should you invest in individual shares, Global Index Trackers, dividend stocks or Crypto? Should you leverage yourself up with Buy-to-Lets? Obviously returns matter, and if one investment returns 3% and another returns 8%, that’s quite important!

But I think there’s another cost that doesn’t appear on any of the FIRE spreadsheets: how much of your time and headspace does your investment take up?

This is increasingly important to me because the older I get, the more I realise that time is the thing I’m actually trying to accumulate here, not money. Money is just the tool that hopefully allows me to get more of it.

Time with my family, time with my kids while they’re still kids, time to go away during the school holidays and generally time to do things I actually want to do rather than things I have to do because somebody is paying me. That’s the whole point of FIRE for me.

So if an investment gives me a slightly higher return, but also takes up hours of my time and occupies a little corner of my brain worrying about whether I’ve made the right decision, is that actually a better investment? I’m not sure it is.

We’re saving and investing all this money so that at some point we don’t have to exchange our time for money anymore. It seems slightly backwards to me to spend 20 years building up enough investments to quit work, only to accidentally create another job managing them.

The wonderfully boring Global Index Tracker

The darling of the FIRE community, I’m no different than most. The majority of my investments are in Global Index Trackers, and they’re boring. Wonderfully, beautifully boring.

I don’t really need to know what’s happening with Nvidia, read Apple’s latest results or work out whether Tesco’s new CEO is any good. I don’t need an opinion on whether US tech is overvalued or whether Japanese small caps are about to have a storming decade. I own thousands of companies across the world and basically just let them crack on with it.

Obviously that doesn’t mean there’s no stress at all. When the stock market decides to throw a wobbly and £100k temporarily disappears from your portfolio, that’s never particularly pleasant! The important thing though is that I don’t actually need to do anything about it.

Markets crash? Do nothing. A company goes bust? Do nothing. New government? Do nothing. Trump tweets something bonkers at 3am and markets throw a tantrum? Still do nothing.

That’s actually a pretty fantastic feature of an investment.

It’s the headspace part of this that I think is particularly underrated. I don’t want to spend Sunday afternoon researching whether I should sell an investment when I could be doing something with the kids. I don’t want to be on holiday checking company results and I don’t particularly want an investment decision rattling around my head while I’m supposed to be doing something else. There’s something quite sad about seeing a parent constantly checking their phone for football scores, the latest social media dopamine hit, a gambling app or, in this example, Nvidia shares in their T212 account or some shitcoin on Coinbase, while their kids are at their ankles trying to get their attention. You might technically be spending time with them, but if your head is somewhere else, are you really?

There are only so many hours in a week and, unlike money, I can’t earn any more of them. An investment that requires virtually none of those hours has a pretty big advantage before I’ve even looked at the return.

...Compare that with Buy-to-Let

Property is probably the most obvious comparison. I’ve never really fancied being a landlord, despite property being one of the classic routes people suggest for building wealth, and I’m not saying Buy-to-Let is a bad investment. Plenty of people have done extremely well from it.

And anecdotally, I’ve never actually met a landlord who hasn’t had at least one trouble tenant. Maybe I just know particularly unlucky landlords, but they all seem to have a story! Houses being left in a state, endless complaints, arguments over deposits, tenants refusing to leave... it might all run perfectly smoothly for five years, but one nightmare tenant could presumably consume more of your time and headspace than my Global Index Tracker will in twenty.

And that's before any of the normal stuff that simply comes with owning the property. A tenant leaves and you need to find another one. The boiler packs in and it’s your problem. The roof starts leaking and it’s your problem. The mortgage deal ends and you need to sort another one. The government changes the rules and you need to understand them. None of these things necessarily make Buy-to-Let a bad investment, but they all require something from you that owning an index fund generally doesn't.

Yes, you can employ a letting agent and outsource quite a bit of it, but ultimately you still own the house and, more importantly, you still own the problem.

If something goes badly wrong with one of the thousands of companies in my Global Index Tracker, I probably won’t even know about it, and heck I don’t even care about it! If something goes badly wrong with the only toilet in my Buy-to-Let at 9pm on a Sunday, I suspect I’m going to know about it.

That has a value. Or perhaps more accurately, avoiding it has a value.

Stress-adjusted returns

Maybe we need another FIRE metric: stress-adjusted returns.

It’s not something you can neatly calculate in Excel unfortunately, but in my head it’s something along the lines of:

Return – Fees – Tax – Time – Hassle – Stress = What I actually get out of this thing

Imagine two investments.

·         Investment A makes me 7% a year and requires approximately sod all from me.

·         Investment B makes me 8% a year but requires me to spend evenings researching it, occasionally deal with problems, fill in more paperwork and spend at least a small amount of my life worrying about it.

On a spreadsheet Investment B wins because 8% is more than 7%. Easy.

But does it actually win, especially if the 7% investment already gets me where I want to go?

Obviously none of this is scientific, and the stress level of any investment will vary hugely depending on the person and how they manage it. But as a rough illustration, this is how I’d personally think about some of the common options:

The important bit for me isn’t whether one asset is objectively “better” than another, but how much ongoing attention it demands. Someone could find Buy-to-Let completely effortless and Crypto unbearably stressful, while someone else might feel the exact opposite. That’s kind of the point.

Individual shares and the research treadmill

I’ve dabbled with individual shares myself, mainly for a bit of fun and in some cases for the shareholder perks, but I wouldn’t want my FIRE plan relying on me successfully picking individual companies.

Once you’ve picked them, presumably you need to keep paying attention to them. If I own shares in Company X and their profits fall 30%, what do I do? Was it temporary? Has something fundamentally changed? Is management rubbish? Should I sell? Is it already priced in? Should I buy more?! ARGH!

Suddenly I’ve got homework.

Whereas if a company in my Global Tracker has a terrible year, it gradually becomes a smaller part of the index. If it eventually disappears completely, another company takes its place and I don’t even really need to know about it.

I think there’s an important distinction here between volatility and stress. My index funds can absolutely be volatile and I’ve seen some pretty chunky amounts disappear from the spreadsheet over relatively short periods, but they don’t create many decisions. I think it’s those decisions, and constantly wondering whether you’re making the right ones, that create a lot of the stress.

Crypto is a funny one

I’ve also got a small amount of Crypto, and I actually think this demonstrates quite nicely how the same asset can have completely different stress levels depending on the person and the strategy. As Morgan Housel has highlighted in his excellent books, money is an extremely personal thing, and how you handle it says a lot about your psychology, priorities and upbringing amongst other things.

I did quite a lot of research into Crypto when I first started investing in it. Graduating in 2008 on the eve of the Global Financial Crisis, I was pissed off at how the banks handled peoples money, overleveraged and creating money out of thin air via fractional reserve banking and ultimately were rewarded for taking risks. I fell down an Austrian economics rabbit hole. Gold and Bitcoin. I wanted to understand how Bitcoin worked, why there was a fixed supply, wallets, exchanges, custody, the arguments for it, the arguments against it and plenty of other rabbit holes I’ve probably now forgotten! There was definitely a decent front-loaded time cost involved.

Once I’d done that research and decided what my strategy was though, it became probably one of the most passive investments I own. I’m not trading it, I’m not trying to work out whether Bitcoin will be up or down next Tuesday and I’m not staring at charts trying to find the perfect entry point.

The strategy is basically the classic Bitcoin one: HODL. Buy it, hold it and leave it alone.

Obviously that’s just my approach. There are plenty of Crypto day traders out there, but there are also plenty of Bitcoin holders like me whose strategy basically amounts to HODLing. Someone day trading Crypto, swapping between different coins and trying to time the market is going to have a completely different experience. Psychologically, it’s also not going to be for everyone; something that occasionally decides to lose 20% of its value while you’re making a cup of tea isn’t necessarily everyone’s definition of relaxing!

But I think that highlights another distinction when thinking about investment stress. Research doesn’t necessarily mean ongoing stress. I’m quite happy spending a chunk of time researching something upfront if the end result is an investment I understand and can then comfortably leave alone for years. What I don’t particularly want is an investment that requires me to keep researching it forever.

The DIY FIRE trap

I think FIRE people are particularly susceptible to all of this because we’re generally optimisers. Why pay somebody £500 when I can spend an entire weekend learning how to do it myself and save the money?

And to be fair, I’ve definitely done plenty of that! Moving savings accounts, getting bank switching bonuses, optimising pension contributions, opening another Regular Saver, moving the money again when the introductory rate disappears, working out exactly how much needs to go into the SIPP, managing the ISA and, of course, updating the spreadsheet.

None of these things are particularly difficult individually and I actually quite enjoy a lot of it, but there presumably comes a point where you have to ask: what am I actually optimising for?

If I spend six hours saving £100, have I saved £100 or have I effectively sold six hours of my life for £100? Earlier in the FIRE journey that might be a perfectly sensible trade, whereas later on it perhaps makes much less sense.

Because again, money isn’t really the end goal for me. Time is.

If I can use money to give myself more time with my family and kids, brilliant. If squeezing another fraction of a percent out of my investments means sacrificing some of that time again, we’ve started going around in circles.

The spouse test

There’s another reason I’ve increasingly come to appreciate simplicity: could my wife understand all of this if I wasn’t here?

That’s perhaps a slightly morbid question, but I think it’s an important one. A couple of ISAs containing Global Index Trackers, some pensions and some cash is fairly straightforward.

Seven Buy-to-Lets, five mortgages, a Limited Company, 28 individual shares, three Crypto wallets, Premium Bonds, twelve savings accounts and an enormous spreadsheet that only makes sense to me? Not so much.

Complexity doesn’t just belong to you. At some point somebody else might have to unpick it, and that’s made me increasingly keen on keeping the core of our finances incredibly boring.

Your investments should need you less as you get richer

I think this is perhaps the bit I’ve only really started appreciating as I’ve got further along the FIRE journey, especially so recently as my net worth seems to have gone up 50% in a couple of years!

At the beginning, your own contributions do most of the heavy lifting. You research, optimise, squeeze out another £100 here and £500 there and feed the money machine as much as you possibly can. Eventually though, the machine gets big enough that it starts doing most of the work itself. As Charlie Munger famously says, “the first $100k is a bitch, after that, you can ease off the gas a little bit.”

I’ve really noticed that recently. There are now months where I contribute relatively little and the investments still move by amounts considerably larger than my salary. At that point, surely I should be trying to make myself less important to the process rather than more important?

I don’t want a FIRE strategy that requires 60-year-old me to remain an enthusiastic amateur stock analyst, landlord, accountant and mortgage broker. Arguably, you’re not really getting the ‘R’ in FIRE if you retire from your actual job only to spend your days tending to your assets instead. I want something that will largely carry on working if I decide to spend August doing absolutely nothing financially productive whatsoever.

More importantly, I want investments that are quite happy sitting there doing their thing while I’m out doing something better with my family.

Enough beats optimal

I think this ultimately comes back to one of my favourite things about FIRE: enough.

Let’s say I’ve got two possible strategies. One should get me to FIRE at 45 with virtually no effort, while another might get me there at 44 but involves leverage, more risk, more admin and considerably more stress. Which is better?

Mathematically, perhaps the second one, but I don’t think the purpose of FIRE is to win a spreadsheet competition. It’s to buy freedom: freedom from needing the next pay rise, freedom from worrying about losing your job, freedom to spend the school holidays with your kids, freedom to work less and eventually the freedom to stop working altogether if that’s what you fancy.

For me, time with my family is worth considerably more than extracting every last percentage point from my portfolio. My kids aren’t going to be this age again. I can make more money next year, I can put another few thousand pounds into an ISA and the stock market will still be there when I’m 50.

I can’t invest my way back into an August with my kids when they were 8 and 10.

That’s why the headspace matters just as much as the hours physically spent managing an investment. If I’m technically spending time with my family but mentally worrying about a tenant, a share price or whether I’ve made the wrong investment decision, then that investment is still costing me something. When I’m with my family I try and make sure I’m not just physically present, but mentally present as well.

So perhaps we shouldn’t just ask “Which investment will give me the highest return?” Maybe we should also ask “Which investment gets me to where I want to be while demanding the least from me along the way?”

Because if the whole point of accumulating money is to eventually buy back your time, creating yourself a load of extra work managing that money seems a bit daft.

I’ll happily leave the last 1% on the table if it means I don’t have to think about it. I’m not trying to maximise my wealth, I’m trying to maximise what I get to do with my time.