A recently published paper by Matthew Killingsworth, a senior psychology fellow at The Wharton School of Business at the University of Pennsylvania, concludes that individuals with higher income often reported increased levels of day-to-day happiness and overall life fulfillment.
Previous research done at Princeton University found that happiness sort of plateaued once annual income reached around $75,000 per year. But Killingsworth believes that to be false and thinks the correlation between happiness and income can move higher in tandem indefinitely. He doesn't think that money and happiness are mutually exclusive. However, he does feel that people with higher incomes often feel they have more control over their lives.
The thinking is that the more money you make, the more choices you available to you during your everyday life. For example, it could be something as small as whether or not you buy organic food. Maybe a little bigger such as your range of 'affordable' cars becomes larger. Your living situation changes because you can afford a home or rent closer to where you work, thus reducing your commute. Killingsworth goes on to point out things like someone quitting a job or even ending a relationship, two things that may become 'easier' if your income is higher.
Obviously, not everyone that responded to the survey questions from Killingsworth reported higher happiness with higher incomes. Still, those who said financial security was important to them overwhelmingly showed a correlation to higher happiness with higher levels of income. However, Killingsworth also pointed out that some individuals with very low levels of income report high levels of happiness. He concludes that more money does buy happiness, but money is not the secret to happiness.
This new research shouldn't be too shocking to you as an investor. Obviously, if you are an investor, financial security is probably something that you think is important. But now that we know this is, be accurate based on scientific research, how can you use this information to make you happier and a better investor?
Well, first, keep investing. And invest as much as you can, especially if you are young. You see, what the research report didn't say, was how these people acquired their 'high' income. It simply asked about annual household income. So, that income we could induce was from salaries. But perhaps also investment income? So, the more you save and invest today, the higher potential income you could have in the future through either investment returns or dividends.
Secondly, don't oppose your investment portfolio and look at it all the time. You don't look at your paycheck every single day, or do you? So don't look at your portfolio every day. The study asked people how they felt at random times. And based on their income, people with higher incomes felt better. Have you ever had your income drop from one day to the next?
I certainly have. It has happened a number of times (sorry, too many times) to me over the past few months. The stock market falls, and my wealth and or income falls. It's not usually fun when I look at my account, and I'm down a few percent in one day. I'm highly confident that if someone asked me to fill out a happiness survey right after looking at my account on those days, I wouldn't appear to be a very happy person at all. But, in retrospect, I think I'm a very happy person.
One easy way to avoid having to look at your account all the time is by investing in basic run-of-the-mill index Exchange Traded Funds. ETFs like the Vanguard 500 Index Fund (VOO), the SPDR S&P 500 ETF Trust (SPY), two ETFs that track the S&P 500 or the iShares Russell 2000 ETF (IWM) which tracks the Russell 2000 or the Invesco QQQ Trust (QQQ) which tracks top 100 NASDAQ listed stocks. These kinds of ETFs allow you to set it and forget it. Buy them, own them for decades, and then reap the rewards.
And finally, the third takeaway for investors is that knowing that our happiness and our income levels move upwards together, we should recognize that we don't need to swing for the fences with our investments. Slow and steady won the race, and a slow and steady increase in income will allow us to enjoy each level of happiness as we climb higher and higher. Think about it this way; if you won the lottery, you would be taking an elevator to the top and missing out on all those stairs on the climb upwards, i.e., missing out on a lot of happiness as you went higher.
I don't know about you, but I don't think I need a research paper to tell me that when I make more money, I become happier. Although, it does make me happier knowing that I wasn't just crazy or greedy for being happier with more money.
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.