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Most investors understand risk-adjusted return. I’m guessing few apply it to the way they earn the money in the first place. That gap, between what you made and what it actually cost to make it, is where some of the most important financial decisions of a life get made without anyone really noticing.
Take my friend as an example. He’s lived a remarkably colourful life. He served in the UK equivalent of Force Recon: small teams, hostile borders, operating deep in-theatre alongside special forces. On one occasion, after going more than a month past his scheduled check-in, his wife was formally notified that he was missing in action. To call that a strain on family life would be a significant understatement.
He eventually moved into civilian work as a personal protection contractor, escorting United Nations personnel through war-torn parts of the world. The risk profile hadn’t changed much. The paycheck had changed enormously. After a few years he had built a small portfolio of rental properties and accumulated a healthy net worth.
The gross returns, by any conventional measure, looked excellent. Once a year he and his wife, a teacher with her own career, would sit down to review their finances together. By his own admission, he was deeply pleased with where life had taken them. Perhaps even a little smug.
At the end of one of these reviews he turned to his wife and asked almost as an afterthought: are you happy with everything? The answer surprised him. No.
She wasn’t unhappy with the portfolio. She was unhappy with the mental toll extracted to build it. The returns had been strong. The personal volatility had been brutal and cumulative, extracting a cost that never once appeared on the spreadsheet.
The lifestyle was comfortable. It just wasn’t worth what it had cost her to fund it.
This is the thing about raw returns: they’re a flattering and incomplete picture. A portfolio generating twelve percent through enormous risk is not the same instrument as one generating nine in relative safety, even if most people would point to the first and call it the winner. The numbers look equally flattering whether the cost is physical danger, a decade of 80-hour weeks, or a small business that takes over a marriage.
Risk-adjusted return exists precisely because headline numbers, stripped of what it took to generate them, can mislead you badly.
He had spent his entire career making exactly these assessments. Evaluate the threat, weigh the exposure, decide whether the objective justified the cost of reaching it. He was exceptionally good at it. He had just never applied that framework to the most consequential portfolio he was running.
His wife had been running that calculation all along. She had looked at the gross return and asked what it cost to generate it. Her answer, when it finally came, was that the yield no longer justified the risk. In any other context he would have recognised that immediately as a rational reallocation decision.
He didn’t agonise over it for long. He left the profession, started a small business, and rebuilt toward a very different profile. He has a vacation home near mine now. His kids play with my grandson, and over the odd Guinness, he told me this whole story himself.
The gross return is lower than it might have been. The risk-adjusted return, properly calculated, is almost certainly better. So have we ever asked ourselves: What is the hidden drag on our family ledger, and is the net yield actually positive?
My friend’s wife had. She just needed someone to ask her.
There’s always the chance that she would appreciate it more later on. My Dad had enough money to live the rest of his life comfortably, but he was still concerned. The concern actually increased over the years when it should have been decreasing. Everyone is so different about this you can’t use any sort of generality. Having said that, a happy “medium” seems to work well for us. We enjoy our lives today but want to make absolutely sure we’re positioned for long term.
SanLouisKid, that’s the truth of it. As you say, “finding a happy medium” is probably the sweet spot we should all aim toward with our work/life balance. Unfortunately, many never achieve this position.
Mark great article, and for sure you made the Best and Right decision. I had the same goals after college, work do all the extras get noticed and up to the C-suite. I actually made the change early on, FAMILY was my goal. I went to work early but came home to be on time to have a family dinner. With my determination I rose through the system. Someone one of my hires beat me out at the VP level. Then they decided to downsize me. After leaving I went to be on my own, worked for another person I hired that started his own company, and competed with my original company. My pay commission only! Worked from home from 1994 to 2024. My family life as good as can be, 3 graduated children from college with advanced degrees, all with families on their own, and all thriving. Six wonderful grandchildren, all graduated as well. Life is better than Good. So happy for you Mark, that you saw the light at the right time. Oh, I tripled my salary, my bonus. Sometimes life works.
William, you were truly blessed to be able to work from home for the last 30 years of your career. To be honest, the concept wasn’t even on my radar until COVID swept across the world.
Mark, another fine piece, thank you. Here is a perspective from the “other side of the coin”.
Starting in college my dream was for a successful career in corporate America – diligently climbing the ranks until eventually landing in the C-Suite. Upon graduation I set about on my journey, putting in the long hours, taking on the extra projects, and generally doing what was necessary to get noticed and position myself for the next rung in the ladder. Things were going well. Along the way I married (and am still married to the same wonderful woman 44 years later!) and eventually had 2 children. Work and career were going well with increasing levels of responsibility. Then the big day came.
I was asked to become the leader for an entire market for the financial services company I was with. The catch: it would mean a move to another state. My boss told me that this was a great opportunity (he was correct) and explained that the executive track I was on required frequent moves once you reached a certain level (I am sure that others in the HD community can relate to this).
Driving home I was already thinking about the new position, how I would implement my plans, etc. My wife had other ideas, however. As chief domestic engineer she was thinking about coordinating a move, finding a new home and community, getting the kids settled into a new school, etc., etc. She then asked me, “is it worth it?” This was a question I was not expecting. We talked a lot over the next 24 hours.
I declined the promotion. A couple years later I was offered another promotion, which also required a move – I again declined the promotion. I was now off the executive track – no one ever tells you this officially, you just figure it out.
Did we make the right decision? Both kids are well-adjusted, married with kids of their own and live about 15 minutes away giving us a lot of “grandkid time” (and some of our nieces and nephews have moved close by with their own families creating a greater sense of a larger family). We remain in the community that we know and love. Our nest egg is large enough to meet all of our expected needs plus some. So by all accounts life has been a success and we are happy.
I am thankful and feel incredibly blessed. As a certain sportscaster often says, “take the win!” Yet sometimes in the quiet of late night I will often wonder: what if…what if I had chased the dream? How would things have ended up? I’ll never know, and honestly, it occasionally gnaws at me.
W.S, thank you for that; it was a really thoughtful response. For what it’s worth, I think you made a good choice.
It’s funny how a life is full of forks in the road, and yet only a few really shape everything after. Those are the ones that stay lit up in memory, the ones that bring on that quiet “what if.”
For me, it was being a teenager in the early 80s, right at the dawn of home computing. Nobody knew yet what this thing was going to become. There was no map, no established career path, just a handful of us tinkering in bedrooms with machines that felt like magic. I already had some of my own game software selling at Tandy on consignment, making decent money for a kid. And the strange thing is, I could feel the size of what was coming even then: that this was the very start of something enormous, and I was standing right at the entrance to it.
But I chose a different path. Even now, that “what if” still visits me. What would it have been like to ride that wave from the beginning, to grow up alongside an industry that went on to remake the entire world? And then I look at the life I actually built, the one I have, and I feel genuinely blessed. No regrets.
My father was not advancing at his company at the pace he thought he should be, so he left for a position at another company that paid twice what he was making. Nine months later he came back at this old salary (effectively a 50% pay cut) and remained at that company for 49 years. I guess the grass is always greener.
Another great piece, thanks Mark.
In Australia we have a lot of FIFO workers – Fly In, Fly Out. Typically remote mine sites where employees live at the mine for a period of time, then return home. Something like 2 weeks on, 1 week off is pretty common.
The pay can be exceptional. The impact on families can be devastating.
Greg, the guy who lives directly across from me, works for a power utility company in Scotland. Every Monday at 5am I see him heading off to the airport, and he doesn’t return home until Thursday evening. It’s not a work/life balance I’d choose for myself, but it clearly funds an expensive collection of toys — a 5-litre V8 Jaguar F-Type and a high-end Range Rover sit in his driveway alongside a massive RV. Unfortunately, he rarely seems to have time to actually play with his hard earned trinkets.
This is a wonderful article, and I hope those among us who are still young enough to make a meaningful change in their lives read it and take the message to heart.
As my wife and I approach our 52nd wedding anniversary next week, on the 23rd of June, I am thankful that on the occasions when I placed work and earning a higher income before my family, which was not an uncommon event, she was there to carry the load on the home front.
We are comfortably retired. Our children are well-balanced, college-educated, taxpaying citizens, so I didn’t miss the boat entirely, but if I had it to do over again, there would be changes. One of those changes might have been retiring a few years earlier, instead of “socking more away for retirement.”
Mike, thanks for putting into words so neatly what I was feeling.
I have had periods where I worked really hard, and my wife bore a huge load in holding our family together and supporting our two daughters. I have very few regrets, but if I had my time again I would try to strike a better balance between working to pay off mortgages, save for retirement etc. and providing more support to my wife and daughters.
Like yourself, I’ve been lucky that it all worked out ok.
Most importantly, congratulations on 52 years of marriage!
Mike, regret is always easier to spot in hindsight — but from the sound of it, a long marriage and great kids, you walked that tightrope well. Happy anniversary to you both!
Happy anniversary, Mike! It sounds like you guys did a great job with the kids!
This is also about diminishing returns …
Gross returns don’t tell the whole story—you have to factor in the sweat equity. If I have to double my effort just to move from a 9% return to a 12% return, the math doesn’t check out for me. I’m interested in maximizing my life, not just a spreadsheet. There’s a point where chasing the extra 3% could turn a passive investment into a second job.
For me, the older I get, the steeper the opportunity cost of time.
John, “the older I get, the steeper the opportunity cost of time.” Very grounded and wise words.
Your post about the family ledger reminded me of a conversation I had a few years back with one of my managers.
I was proudly showing him a fairly sophisticated retirement model I had built in Excel and was feeling pretty pleased with myself. He listened for a while, then stopped me.
“Let me tell you something,” he said. “A few years ago, I was exactly where you are. I spent countless hours building spreadsheets and optimizing every detail of our financial future. I knew the numbers cold. What I didn’t pay enough attention to was my relationship with my wife and what she wanted out of life.”
He paused and then added, “Eventually, the marriage ended. We divided the assets, and I’m still working because I need to.”
That conversation stuck with me.
Mark, definitely a hard learned lesson on perspective was imparted to you that day.
It strikes me that in all those financial conversations, he never asked her if she was happy, and she never spoke up.
This wasn’t just a failure inrisk assessment. It was a failure in communication.
They are both fortunate the marriage survived.
Mike, that’s a fair comment. From what I can tell, they’re a close, loving, and open couple. They’re also older parents — they had their kids in their early 40s, who are now around the same age as my grandson. My guess is that his wife’s tension over his dangerous career got amplified once the kids arrived; that life stage has a way of changing your perspective, as I’m sure you know. Though I should say that’s just a guess — the conversation arose while we were propping up the bar over a few drinks, and I never probed too deeply.
I think a lot of breadwinners would have become defensive; “I DID IT ALL TO FOR YOU, YOU’RE UNGRATEFUL”. So to his credit, he must have heard her, and she apparently still had enough love in her heart to move forward. Eventually, they figured out the communication thing.
I had a few thoughts while reading.
I was thinking of the article by Andrew Clements; the toll that building his landscaping business had on his first marriage.
Also, physically demanding jobs can pay well, but the cost basis of poor health can wipe out the capital gain.
I have to rest now; two thoughts at the same time hurts my brain.
Dan, you excelled yourself with two excellent thoughts. When I was in college, I had a Saturday yard job with a builders’ supply business. The thought of still lugging 60lb bags of sand and cement into a pickup as I got older certainly sharpened my thinking around education and career.
Thank you for addressing a topic that is rarely touched on in personal finance. The dollar amount is what gets the clicks, but the unseen cost of what we build is something we should all pay more attention to. I think most kids with highly successful, career-minded parents would gladly trade financial security for presence.
Also I couldn’t help but think this guy could really up your Nerf game!
Marcus, your final remark made me laugh! On a more serious note, your point about presence is spot on, and working on this post stirred up some echoes of my own career as a business owner. There were so many times I couldn’t make it to my girls’ sporting events or dance rehearsals because of my workload. Now that I’m retired and have the time to follow my two grandchildren’s every interest, I’m more aware of what I missed back then — and it makes me wish I’d made more of an effort during my career.
Also I couldn’t help but think this guy could really up your Nerf game!
Good one, Marcus🤣
Mark, I enjoyed this article because it applies a financial concept to something far more important. We often calculate the return on our investments, but rarely the return on the lives we’re building around them.
The phrase that stayed with me was “the personal volatility had been brutal.” That’s a cost that doesn’t show up on a statement, yet it may be the most important one to measure. As I’ve gotten older, I’ve become more convinced that success isn’t just about what we accumulate, but what we’re forced to sacrifice along the way.
Sometimes the highest return comes from accepting a lower financial yield and a richer life.
Andrew, it’s definitely a difficult tightrope to navigate successfully. During my own career, I admit to a few wobbles over the years. To extend the metaphor, your family and friends are ultimately your biggest safety net — and that’s worth remembering.