Don't Put All Your Eggs In One Worldview

Musings and Confusions on “Personal Finance" for the "Modern Person"

I had a moderately uncommon financial upbringing. My mother, recognizing the importance of money and not being controlled by it, tried her best to teach me (while learning herself) how financial planning worked.

This resulted in us reading books together (Rich Dad Poor Dad was a large part of our conversations for a year or two), and visiting financial planners and seminars together. It was an interesting experience as a ~15 year old, learning about “compound interest”, “diversified portfolio”, and “technical vs value investing”.¹

I recall around that time, I started to “research stocks”. I remember picking out Ford (because why not) and studying its wikipedia page: the CEO at the time was replaced with someone from the aerospace industry. Not knowing about things like “rationalizations”, I remember coming up with a flawless logic for why the Ford stock will definitely go up and emailing it to a financial planner whose seminar we went to.

I never got a reply 🥲.

The overall experience seared a central idea in:

Money is an asset. It has to be managed, just like any other resource.

Once the why has been answered, the question becomes the how?

The default “how” was fairly laid out. I am to get a high-paying job, save a substantial portion of my income (especially optimizing for government saving incentives like the TFSA), and smartly invest the savings into a diverse set of assets. Well managed, it’s certain to lead to retiring relatively early (~45 as a default assumption) with low millions in assets for me to leisurely fish for the rest of my life.

Unfortunately for that plan, almost out the gate, my life started taking turns – a half-millionaire (on paper) at 21 to homeless at 23. I ended up mingling with people in wide-ranging socio-economic classes, from those in crushing debt to those with high net worth, and it undermined the certainty of the default plan. Once I started to understand how it feels – the interior/qualia of a person’s experience – to see money as “next week’s grocery” to “an asset to diversify” to “a resource to lobby and influence stakeholders”, these worldviews ended up radically different (and often conflicted) with each other.

Now I have a problem. Money still seems like an asset that needs to be managed, but I have conflicting instructions on how.²

What do?

Unlike even 50 years ago, the typical person’s options for where to put money are explosively varied. From investing in stocks (a many-centuries-old tradition) to investing in derivative markets (a few-centuries-old tradition) to investing in sneakers (a 20-year tradition) to investing in NFTs (a <10-year tradition).

In this way, the traditional notion of diversifying my investment portfolio (some stocks, some bonds, some cash, etc) seems to reflect the option space poorly. The question is why? What does it mean to reflect poorly on the options?

But first, why do some stocks, bonds, and cash anyway?

Classically, the heuristic in investing is to build a “Diversified Portfolio” – colloquially known as “don’t put all of your eggs in one basket”. The idea is that if I put all of my resources on one bet, given an uncertain world, there’s some chance that all my resources could go bust with the one bet, thus I should make multiple bets. This both spreads out the risks I’m exposed to and also opens exposure to multiple forms of returns. The most common way of seeing this idea in personal finance is that one should have a “portfolio” in which multiple kinds of investments exist – bonds (often considered lower risk, lower return), stocks (often considered higher risk, higher return), and cash (supposedly zero-risk, with a slightly negative return, AKA inflation)".

A key assumption underlying diversification is the idea that I’m putting my eggs in “different baskets”. How one then categorizes “baskets” becomes a layer of thinking we can and must examine critically.

Let’s consider an example

If I have three One-Dollar Bills, am I diversified?

This might be a strange question in the conventional thinking of a “Diversified Portfolio”. What I would have is cash, so of course I’m not diversified. In recognizing this, we can notice when and how a “basket” is conceived in our mind. In the conventional case, we wouldn’t call this diversified because relative to overall market movements, the “basket” known as “cash” moves as one unit, because every dollar is fungible (i.e. one dollar is no different from another dollar). In other words, a basket is something akin to “a stable unit” relative to a “dynamic context”. In this case, the unit is “cash” and the context is “the market”. Within this context, suppose I had said I have three One Dollar Bills, but one is American, one is Canadian, and one is Australian, then I would be “more diversified”. This is because while they are all “cash”, they are different units (of cash) because they are tied to different nation-states (and loosely correlated with their respective countries’ market performance), so while we may be (very) dissatisfied with the “degree” of “diversification”, we are in fact working with three different “units” in the “context” of the market.

If we can sufficiently abstract the idea of “Context” as the thing to create a stable “Unit” against, then I can conceive of a context to make each dollar bill its own stable unit. It sounds a bit complex, but we do this naturally all the time. Suppose I have three one-dollar bills and I want to avoid losing (misplacing, rather than depreciating) all of my money. I could keep one dollar in the bank, one dollar under my mattress, and one dollar in my pocket. Against the context of loss prevention, the same dollars placed in different locations are now distinct units exposed to different risk-of-loss, and thus we are diversified for the context.

By examining what context we are trying to diversify against and considering what units are available to us, we can conceive of a corresponding diversifying strategy.

The scary part though, is when the context creeps away from us without notice. We might be diversifying against an outdated context that is no longer appropriate. In other words, what happens if the baskets I put my eggs in start to merge or split in two, or who knows what shenanigans?

We have never seen a world as it is today in human history. In a matured post-Bretton-Woods world, where trade is so globally interconnected that war is “theoretically” economically unviable, what might be once decoupled and useful (i.e. uncorrelated or anti-correlated) for diversifying investments (e.g. stock and bonds) is increasingly blurred together.

Correspondingly, new worldviews are emerging in such an increasingly VUCA environment, with associated, often radical, financial/economic implications. Consider some of these views, in loosely increasingly abstract expressions of the “Context” in which we are supposed to diversify.

The pitch for China as a rising superpower is an interesting investment consideration. This worldview would argue that the global US order of the past 30 years is transitioning. As this transition happens, whatever we invest in may split into two distinct domains: a US economic sphere and a Chinese economic sphere. It creates a new axis for diversifying. If I think the US system is declining and the Chinese system is rising then I need to diversify by placing some of my bets within the Chinese system. If I was blind to this, and the US system collapsed, I may sink with the entire “context” that is the US. This already has precedence too: in the 2008 crash, China outperformed the US by a sizable margin. A savvy investor wouldn’t let themselves fall prey to this, and very intelligent people are already acting on this. Ray Dalio is one such example, who also has a good explainer of exactly this model.

Ok, but what if I have a problem with the entire model or context of “Markets as Facilitated by Modern Nation States”? The pitch for Bitcoin is a definitive example of this. By claiming that modern fiat currency and its associated systems are itself a monopoly, by offering a product that is (supposedly) outside that regime, it claims something wild. It’s hard to understate just how incredible this worldview is compared to the world of the last century. It essentially says no matter how you diversify between typical investments, they are all still within the larger basket of the “Fiat Market” – regardless of whether facilitated by the US or China. It brings to mind the radical (or heretical, depending on the point of view) reminder that if the state fails to uphold its end of the bargain – a stable monetary environment that upholds property rights – we will sink too. So suppose we expect failed states to become a more common phenomenon, then we ought to diversify for this as well, through holding Bitcoin for example. This also has precedence: Venezuela is/was a notable example of high crypto adoption due to a failed/failing state apparatus. There are also examples of savvy investors working in this direction, from Andreesen to Balaji.

Ok, but have we considered that all these models still presuppose a pathological growth mindset under a “Capitalistically Extractive Market with Imperial/Colonial Roots”? A 3% growth rate per year (the typical rate of growth most developed economies aim for) implies a doubling every 24 years. There is simply no amount of resources on the planet (and by math, even in the universe) to accommodate growing 3% per year forever.³ In this worldview, we must diversify (which in this frame sounds more like divesting rather than diversifying) from the entire economy as it has operated. If the crypto frame is radical in the context of the last hundred years, this frame challenges our very idea of the economics of the past millennia. Illustrating through examples and theory in ecology and general complex systems, exponential growth within a closed system invariably creates diminishing returns and more commonly overall collapse. To this end, we would need to re-conceive our idea of what an economy is from the ground up to avoid catastrophic economic developments. There are also thinkers working and investing in this direction, like Kate Raworth, Riane Eisler, and Nate Hagens.⁴

Notably, as we incorporate broader and broader considerations, the scope starts to implicate more than “personal financial planning” – our social fabric and deep philosophical implications are unavoidably entangled.

For the scope of this piece of writing (and my sanity), I’m going to return/reduce to:

What do? How should I invest my money/resources given all these considerations?

What these worldviews suggest is that we may want to diversify across possible worlds (and associated worldviews) at least as much as assets within those worlds.

From here, I can conceive of a diversify-against-distinct-worlds portfolio: let’s say a) Stocks – the world as we’ve largely known it, b) Bitcoin – a world where fiat is no longer reliable, and c) A Regenerative Agriculture Project – a world where modern capitalism is no longer reliable.

Compare that to a conventional portfolio: let’s say Stocks, US Treasury Bonds, and a Condo rental unit (all reliant on the world as we’ve largely known it). We can imagine, to the extent that we believe that there are non-trivial probabilities to qualitatively different worlds, we would have more security with the diversify-against-worlds portfolio than the conventional.

We also gain the ability to evaluate asset classes across different worldviews rather than how an asset tend to do in a single world. At least intuitively, we can consider how precious metal may have differential stability across peace-time or war-time worlds, or that crypto and modern financial products are more vulnerable to a Carrington event, or real estate is vulnerable to shifts in conceptions of property rights etc.

However, the complexity of rigorous evaluation within this scope of financial planning is … philosophically difficult. Given that we are evaluating across different worldviews/ontologies, there are distinct cases where critical contradictions make evaluations apparently infeasible. For example, if we attempt to discern the value of a tree from an economic paradigm that is more ecological, we would have to somehow evaluate its worth as a living constituent within an existing ecology, and somehow account for it as a portion of all output of the ecology, from the air it provides to the nutrients it provides to the neighboring trees to the home it provides for insects and birds, etc, etc.⁵ Contrast this with evaluating a tree from the paradigm of classical economics which would price it at its utility relative to human use, where the value of lumber would be a suitable proxy. Then, considering whether one should invest in a forest becomes an almost impossible evaluation.

It is also conceivable that there exist asset classes within particular worldviews that are somewhat or entirely illegible to another worldview. For example, in a less rigorous and more folk wisdom sense, those who have worked in business development recognize that a High-Trust Relationship is an “asset” of some kind. While this kind of asset is unable to be formalized (i.e. it can’t be converted to a dollar amount such that it can be compared to other assets nor can it be traded quite like regular securities), the empirical fact that we create tools CRM software implies that there exists “value” in the relationships those tools are meant to support, no matter how intangible it may be. Politicians have historically recognized this. With book titles like “The Power Broker”, these ideas at least metaphorically imply an “economy of relationships”. It also illustrates why net worth isn’t the only relevant measure of “wealth” in the upper echelons of society. We might then theorize there exists an “economy” in which at least “relationships” count as assets that one could “invest” in. This economy and its worldviews are not well coupled to the primary market economy and thus one could invest in both economies as a diversifying strategy. However, to invest in this, I can’t simply go to my financial planner and say “Put $1,000 in the High-Trust-Relationships Index Fund”. I would have to learn the logic of an entirely different economy or worldview, and its associated infrastructure. This would look more like “remembering the other person’s birthday and wishing to do something nice for them” than any usual notions of investing.⁶

To the best of my knowledge, financial planning as we have scoped here, is approximately non-existent as a formal field.⁷ In my case, my original inspiration for this notion came from Gregory Bateson’s Steps to an Ecology of Mind, who made a seemingly throwaway comment about the idea of “meta-economics” (a quote I can’t quite find now). To paraphrase, if economics is the pattern by which what is valuable is distributed, meta-economics is the ways in which economic patterns can themselves be valued and distributed. If there was a label for this not-formal field, I’d label it meta-economics.⁸ A big part of why I believe it’s hard to make this a formal field is because the complexity of this field is a bit ridiculous. Just as competently understanding a cryptocurrency project usually requires substantive knowledge in game theory, cryptography, and programming (an already impressive set of disciplines), approaching an integrative view of many worlds and their economies calls for an interdisciplinary capacity that current education is not remotely built for. I do think it is possible and even necessary though.

So, what do?

Ultimately, I think we are left with more questions rather than answers. However, given the nature of the problem – how to sensibly manage one’s limited resources in an (apparently) increasingly uncertain world – asking better questions seems far more important than grasping onto (probably) deceptively clear answers.

In my case, I have spent much of my time and effort in visiting and understanding different worlds and their people. By doing so, I hope to retain access and literacy in such a way that I may then “invest” in these worlds as the world itself shifts. Meanwhile, musing about this overall field of study as well as the appropriate corresponding institutions for this kind of “meta-economy” is an interesting inquiry too. Fortunately, this all has also added up to an enjoyable journey along the way, which makes it interesting to reflect on and write about.

1. It was honestly kind of surprising to me when I learned that this is not common – a surprise-pikachu moment of being too silo’ed in my local demographic.

2. Here is an example of the postmodern dilemma. On the one hand, it’s easier to simplify a bit, choose the best-seeming paradigm, and pursue it wholeheartedly but discover it to be inadequate for all relevant situations. On the other hand, it’s more complete to use multiple paradigms to get all of their benefits, but in doing so get bogged down by the contradictions and complexity between paradigms.

3. So long as we assume that economics is still based on physical/biological substrates (i.e. Earth and its resources). Opponents of this may say that due to growth becoming more software and digitally oriented, growth can decouple from planetary constraints. Proponents of this would then argue that even software needs to be run on hardware, and would point to global energy consumption of tech usage, for instance.

4. I also think it’s not remotely an accident that this is the layer where women thinkers are both more common and more notable.

5. As I understand, there is somewhere between no known way to account for this accurately to literally impossible to account for this accurately.

6. Just like diversification as a theme in this post though, many concepts could be cross-domain-relevant. The idea of alpha in financial investing, for example, could still be an effective metaphor/analytical tool for different worldviews’ economies.

7. Very wealthy people/firms and the thinkers they commission tend to think about these. Somewhat independent of that, other small clusters of other people also think about this, but I’m not aware of any unifying groups thinking about this.

8. I’m ignorant broadly of how the field of economics broadly understands the idea of meta-economics though. I imagine it inevitably pulls in ethics and meta-ethics quickly enough.