All four primary sources of wealth creation represented in the Forbes 400 involve “idiosyncratic risk”—the kind of risk that, according to the tenets of modern portfolio theory, “rational” investors can and should eliminate by diversification. Yet most of the people on the list believed, and still believe, that focusing on what they know best is th

The “market,” as we have seen in the earlier chapters, represents the aggregate wisdom of the crowd as well as the foolishness of the masses.

“animal spirits”: our propensity to make decisions based on a “spontaneous urge to action,” in Keynes’s words, rather than on a careful consideration of weighted probabilities, as rational economic theory would suggest.

objective-driven investing.

Therefore, investments allocated to the personal risk bucket will be selected to limit the loss of wealth but will probably yield below-market returns. Allocations to the market risk bucket will provide risk-adjusted market returns, in accordance with the diversification principles of modern portfolio theory. Finally, allocations to the aspirationa

four hundred years of price data on homes in the Dutch city of Amsterdam suggest that, over the long haul, real estate merely grows at or just slightly above the rate of inflation.

The certainty of protection from anxiety and poverty, or safety. • A high probability of maintaining your standard of living, or stability. • The possibility of achieving upward wealth mobility and creating the potential to meet your aspirations.

The truest test of a successful investing and wealth management strategy is whether it can effectively insulate your essential goals from the whims of the financial markets, while simultaneously positioning you to achieve important goals and preserving your opportunity to achieve aspirational goals.

most people make two mistakes when thinking about retirement: they usually overestimate how much money they need to be happy, and they usually underestimate how much money they will need in order to sustain their current standard of living in the future.