Joe S. sent me a recent New York Times editorial from Ben Stein, who describes being approached by representatives from Bernard Madoff. Madoff ran a Wall Street hedge fund which reportedly “never lost money”. Stein thought it sounded fishy, and he didn’t take the bait.

“I have never heard of an entity that could make money in all kinds of markets consistently, year in and year out,” Stein writes. “I have never heard of a financial manager who promised to be able to defeat the markets anytime he chose and who, in fact, was able to do so.” He points out that even Warren Buffett lost 32% in 2008.

Turns out Stein’s gut instinct was correct. Madoff, it was recently revealed, had essentially been running a giant Ponzi scheme, a stock-market pyramid scheme. He was bilking investors out of money. As is always the case, there’s no real way to get rich quickly. The true path to wealth requires slow and steady effort.

Stein ponders the myth of easy money, and why it’s so appealing. He concludes his essay with a lovely meditation on what I think of as True Wealth. He writes:

We are more than our investments. We are more than the year-to-year or day-by-day changes in our net worth. We are what we do for charity. We are how we treat our family and friends. We are how we treat our dogs and cats. We are what we do for our community and our nation. If you had $100 million or $100,000 a year ago and now you have a lot less, you are still the same person. You are not a balance sheet, at least not one denominated in money, as was explained to me recently.

Losing and making money are not moral issues so long as you are being honest. You may have a lot less money as this year ends than you did two years ago. But you are just as good or bad a person as you were then. It is a myth that money determines who you are, and if you have gotten over that myth by now, then 2008 will have been a very good year.

Amen, Ben.

Over the past few months, many people have asked me how I can remain so calm during the economic crisis. There are several reasons, actually:

  1. Worrying does no good. I can’t control the national economy. I can only control my personal economy. To that end, I continue to watch my spending, to save, and to invest for retirement. If I’m doing what I believe is right, that’s all that matters.
  2. The more I read, the more I think that market crashes are simply part of the process. I expect the economy (and the stock market) to recover. I don’t have much invested right now, so this is more an opportunity for me than a disaster.
  3. I understand that I am not my money. I grew up poor. I lived most of my adult life deep in debt. Now I’m actually building wealth. But through it all, I am the same person I’ve always been.

As we head into 2009, I encourage you to set financial goals, and to pursue them with vigor. I think it’s a good thing to want to improve your financial fortune. But at the same time, don’t lose sight of what’s important. Remember: you are not your money.

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