MI Rewind: Just Keep Buying w/ Nicholas Maggiulli

20:31Well, take another$400 and invest it in some sort of income producing asset, whether that be some sort of REITs or stocks or whatever. I'm not trying to give you a specific recommendation. There's a lot of income producing assets you can invest in. But you invest another$400 because then you'll feel like, hey, even though I splurged on myself, I took the same amount of money and I put it towards a good use, whether that's investing or you could even donate it. There's a lot of ways you can do this. And if you feel like, oh, I'm spending too much on myself, well, donate that$400 to a cause you care about.

20:58And that's going to eliminate that guilt. So you're not going to feel bad. Every time you splurge on yourself, you're going to be helping someone else or helping your future self, whatever, however you want to do it. There's a lot of different ways you can do this. And I think that's helpful because we're a society that, as I said, in the personal finance community does guilt people a lot. And I'm just trying to get people to stop being in their heads so much about this. I'm saying like, hey, I've looked at the data on this. I've thought about this a lot. And here are some ways that you can just live a nicer financial life, not worry about money as much.

21:22It's funny because I write about money. I think about money all the time. But at the same time, in my personal life, I almost never think about money. It's not because I'm super rich. I'm not a millionaire. I don't have all these things going for me. But at the same time, I've been able to free myself from always thinking about like, oh my God, I'm not rich enough. I'm never going to have enough. And getting out of that scarcity mindset and just not stressing about a lot of these things and getting rid of that guilt, I think is really important for just enjoying your day to day. I am the exact same way.

21:47I'm not some multi-millionaire. I'm not super successful by any means, but I do think and talk about money pretty much all day, every day, whether it be on the podcast or social media. But in my personal life, I just spend a little bit of time on it and don't really stress about it, like you said. But what's interesting is the personal finance community, like you mentioned, can be a little bit judgmental at times. One of the things they might say is that you need to pretty much save as much as you possibly can. A lot of people post about maximizing their saving rates, but your book talks about how people actually don't need to save as much as they think.

22:19Can you break down that idea for us? Robert Leonard I've just looked at the data on retirees, and I think this says a lot. So I mean, the most shocking fact I have is like only one in six retirees are actually pulling down their principal. So if you have a million dollar portfolio for retirement, only one in six are actually kind of pulling, like spending that money. Most of them are living off social security and the dividends they get, the income they get from their portfolio, which is kind of shocking to think like, what? That's such a small amount. And you're saying, what about the people that don't even have a portfolio?

22:47Well, then they're just living off social security. That's not great, but they're getting by somehow, right? So I'm not saying it's the greatest lifestyle, but a lot of retirees end up getting to the finish line. They're there, and then they don't end up spending down their money. And it's kind of wild. And I especially see this, like, you know, I've worked in a wealth management firm, so I see this, especially because we have high net worth individuals. And the thing we have to really do is get them to spend money. And they're afraid because they've been in saving mode for so long. They've done it so well.

23:08They're so disciplined. And now to turn the lever the opposite direction, it's scary. And it's also psychologically difficult. So I'm trying to give people the permission, not to say spend all your money, do this, but just like, don't worry so much about how much you're saving. And of course, there's going to be exceptions. If there's people who are a couple hundred grand in debt and they don't have any emergency funding, those people need help. And those people do need to think about their savings. But at the same time, that's not everybody. So figuring out what we can do to help people in those scenarios, whether it's policy, things like that.

23:35At the same time, all the people that aren't in that scenario, I have friends who I'm like, I have friends that are much richer than me. They exited from their companies, they got equity in their startups and everything. And they're worried about money. I'm like, what are you... You're two years younger than me. You're like, your net worth is three or four times mine. You're worried about money. And it's not crazy. It just shocks me, really. It does. And I think there's a lot of people out there that are like that. And it's scary. So I'm just trying to give people relax a little. There's a lot of data on people who die in their 60s.

24:02I can't remember the exact numbers. And I wish I should memorize this. But it's something like the average bequest is like $175 ,000,$200 ,000. In their 70s, it's higher. In their 80s, it's even higher. So it's like, as people die older, their money keeps going up. And the other really cool fact, Michael Kitsis did this analysis on the 4 % rule. And he says, let's say you just pulled 4 % of your portfolio every year and had a 60-40 portfolio, you are more likely to 4X your wealth after 30 years than you are to have any depletion in principle. So if you start with a million bucks and you just use the 4 % rule on a 60-40 historically, 30 years later, you're more likely to have$4 million than under a million.

24:39That's how crazy it is. And that's the data right there. It's like people think, oh my gosh, I'm going to run on my... No, your wealth's probably going to keep growing. That's the crazy part. You're going to be in retirement and your wealth's probably going to keep going up and up and up. And so that's the thing that I think a lot of people don't realize is just how the upside that is really available. And that's why I think people need to save as much as I think. Robert Leonard So do you think the 4 % rule might not be the best metric to use? No, I think it's fine. I think it's a good rule. It works for a lot of ways.

25:06I mean, there's debates right now because inflation's high and there's debates about whether the 4 % rule needs to be rethought, especially because bond yields are lower and that those are fair arguments. And it's kind of complex. It's not an easy topic. I don't even think I'm the expert on this. I would talk to Kit Sees or someone else on that. 4 % is a decent rule. It's just worked over time and it's been around for a while. And I talk about it in the book. I think it's a decent proxy just to start. And it's easy, right? It's easy. It's decent because retirement is really one of the most difficult problems to solve.

25:32And the 4 % rule is great because it gets a lot of stuff without having to really do a ton of calculations and life expectancy and projective returns, it just solves a lot of that very quickly and it's a decent proxy. Now, is it the greatest? No, but I think 4 % rule is fine for most people. If you're just trying to find something and go with it, I think it's decent. Debt can be a very controversial topic in the personal finance and investing world. On one end, you have Robert Kiyosaki who talks about loving debt, at least good debt, not credit cartet. Then on the other hand, you have Dave Ramsey who says that all debt is bad.

26:07As a real estate investor myself, I personally side a bit more with Kiyosaki. Why do you believe that debt isn't good or bad? Yeah, I think debt, it really depends on how you use it, right? And that's always going to be kind of driven, it's context dependent. But yeah, if I have to pick, I'm probably closer to Kiyosaki on this as well. Because I really, I think I said this, I said something like, the people who are best fit to take on debt are the people who don't need it, right? If you don't need debt, you don't need it to like, oh, I really need this to get this out. If you could buy a house cash, don't.

26:39That's the thing. You're thinking, oh, I should. There's people that do it to sleep at night. And I know people in my personal life, good friends of mine who are just like, oh, I had to buy them. I just don't want a mortgage. It just gives me peace of mind. Great. Do that. There's nothing wrong with that. But a lot of times having debt is great because of inflation. You have that debt and over time gets inflated. And the example I give in the book, my grandparents bought their house in California in 1972 for$27 ,000. Their payment at the time, I think, was like$270. bucks. 10 years later, after all the inflation, because I don't know how my grandfather's wages went, but let's just assume my grandfather's wages kept pace with inflation.

27:1110 years later, in real terms, their payment was cut in half, like in real terms. They were still paying$2.70 a month, but that money had been cut in half due to inflation. So that's the real benefit of debt. And right now, because we have high inflation, anyone who took out mortgages in 2019, 2020, stuff like that, because of this high inflation, assuming their income is moving up with that inflation, it's great because now their payment's not moving at all and the dollar's becoming worth less. You're paying back in depreciated paper, basically. So that's why debt can be really good. Of course, there's exceptions.

27:40There's times when people get too over-levered. There's times when people get way too much credit card debt. There's all sorts of cases where it's bad. But I think generally, it's context-dependent. I think it can be really good. And so I don't think people need to freak out about debt as much as they do. I locked in my mortgage on my personal residence back in, I think it was 2020, money at 2.2%. As a 30-year fixed mortgage, I just cannot imagine ever paying that off. I have friends, like you mentioned, that are big proponents of paying off their mortgage. And I understand that from a psychological standpoint, but for me, just from pure quantitative factors, I just can't pay off a 2.2 % mortgage when inflation's as high as it is, and I just don't lose sleep at night over it.

28:20Yeah, I agree. And so I think it's a personality thing. Some people will do that. The book I would rep for that is The Value of Debt and Building wealth, that really changed my mindset. I used to be pretty anti-debt. And after reading about that, I was like, wow, there's a lot of cool things you can do with debt if you do it responsibly. And once again, the people that are best to use debt are the people that don't need it. It's really kind of like a privilege for those who just have assets. That's really it. Think about it. Debt is great. Think about what someone like Elon Musk will do where, I mean, he's since sold stock, but what he used to do, he used to take, oh, here's all of my equity for Tesla.

28:51He would say, okay, I'm going to borrow against it. So instead of selling his stock, which lowers his equity percentage, and then he has to pay taxes, he just borrows against it and gives his stock as the collateral. So he's using debt, taking all pay 2 % a year. It's small for him. And with inflation, it's even smaller. So it's one of those things where even the ultra rich uses to their advantage all the time. Robert Leonard I was just going to say, that's what I've heard is one of the quote unquote secrets of the wealthy is that they'll a lot of times have no actual active income or anything like that.

29:20They'll take their real estate portfolios or their equity portfolios, use them as collateral and take the debt, like you said, and use that as their income, pay 1%, 2%. And taxes are lower. Yeah. Because the taxes, taxes where they get most people, right? People who pay most of the taxes are like high income people. With the stock market having done so well over the last decade, arguably one of the best decades ever, and a lot of investors in the market today have never experienced a real recession, there are many individuals wondering if it makes more sense to invest their emergency fund or savings while they save up to make a big purchase like a house or a wedding.

29:57Why do you believe just keeping the money in cash is the right approach when saving for a big purchase? Yeah, most of that is just volatility. There's way too much risk. If you're going to be buying something in the next two to three years, it needs to be in cash. I know right now inflation is high and that seems really silly, but look at most of the last 12, 15 years. Inflation is generally low. There are times when it's high and that sucks that it happens. And that means you're going to have to save, let's say you're saving up for something. You're going to have to save for an extra month or two.

30:24If you're saying like, let's say you're saving$1 ,000 a month, you need to get to like, I don't know, let's say 30s. I'm just going to make the numbers easy. Let's say you need to get to$36 ,000, right? So you need to save a thousand a month for the next three years to put down a down payment on a house or something. I don't know. I'm throwing that out there. Okay. So you're saving that up. Inflation's high. Okay. After like a really high inflation, you might just save for another three or four months. That sucks. That's not great, but you just got to move your purchase out a little bit. The flip side is what if you put that in stocks?

30:48And even though most of the time I agree, you will do better, there are really big risks when it crashes because you could lose a lot of that money. And if you really need it, saving for an extra one or two months may not do it for, you have to save for another year or longer. And if you go into a prolonged bear market, it could be even worse. That's why I say, when you need the money, you need to be closer to cash. And I've also asked, I have a lot of advisors that are in my network and I've asked them and they all say cash, cash. For sending two to three years cash. After three years, you might want to start getting some real bonds or something.

31:15After five, you maybe need to consider some bond stocks as well. So that's how I look at it based on the data. It's the under three years cash, three to five, you start adding bonds, and then five plus, you'll start adding stocks. And what the risk amount, it depends on what you want to do. And those are bonds. You don't have to do that. You do real estate. There's other things you can do. I just use bonds and stocks like a less risky versus more risky risk asset, right? So income purchasing asset. So you can be like, oh, I'm going to put bonds or I'm going do something else. There's a lot of ways to do it.

31:41I don't want to just say you have to do bonds on stocks. That's just the traditional assets people talk about. Robert Leonard You look at tech and the FAANG stocks over the last two, three, four, or five years, they've done really, really well. But if you've been putting your savings or emergency fund into those stocks or companies the last couple of years, and then you needed it recently, you'd be in a rough spot on some of those picks. You're down 20, 30, 40 % on some of those holdings. Facebook, for example, is down 40 % from its highs during the time of this recording, And one of my big holdings, Square, is down over 50 % from its highs.

32:13Even some of these great companies are down significantly. So if you needed that money now, then it would be really bad timing to access that cash. Yeah, it's just risk. I mean, if you're trying to plan for something, you know, you want, especially like, oh, we're having a wedding on this. It's a house, you can push it around. If it's like, oh, we're doing a wedding, you don't want to start delaying your wedding because you don't have the cash for that. That's not something you want to do. So you got to start thinking about planning and things like that. And it's not great with inflation, but it's safest thing to do.

32:39And for now, that's just generally true. And we haven't had an adverse cash event like, oh my gosh, the cash is now worthless or hyperinflation. If we have that, I think your wedding is not as important as what's going on in society, if we're being honest. The advice to not buy individual stocks isn't new. Jack Bogle, JL Collins, even Warren Buffett, and many, many others have said that most people shouldn't buy individual stocks. However, rarely when this advice is given, is it actually backed by real data and facts. I'm not saying that that data and facts don't exist, but usually when people on social media say you shouldn't buy individual stocks, they don't provide data and facts to back up their argument.

33:17Since you are someone who studies data religiously, break down with data why individual investors don't know if they're just lucky when they pick a good individual stock and why most investors shouldn't do it. Yeah. So when I think how I like to think about this and how I broke it down in the book is there's two different arguments. The main argument that when most people in Buffett and Collins, all these people are saying, don't buy individual stocks. I didn't think they have some data. And that data is basically like, you look at like what I, there's the SPIVA reports, SPIVA, you look those up on Google and you'll see that over like any five-year period, something like 60 to 80 % of active managers cannot beat their benchmarks.

33:51It's usually like 75 % after fees and everything. Most of the professionals with analysts and all these resources can't beat just a passive index fund, right? So after a five-year period, so what it shows is like, it's really tough to do. So just by picking a passive index fund, you're at the 80 % up. So I'm going to call that the financial argument. And that's the argument most people make. They're saying, hey, you shouldn't do this because you're going to make less money. And that's fine. That's the argument. That's what I'm saying. I brought that up. I have to address it because that's the one most people talk about.

34:16And that's fine in its own right. But that's not the argument I make. The argument I make is what I call the existential argument, which is what you're talking about. And the existential argument is basically like, how do you know that you're good at stock picking? With so many endeavors in life, you can identify skill relatively quickly. And the examples I give is, let's say you, myself and LeBron James went out to a basketball court. You would tell pretty quickly. Let's say you didn't know who LeBron James was. You've never heard of this guy or just a similar LeBron James figure. We go out and play.

34:42You're going to know pretty quickly. I can't play basketball and he can. There's no luck. I'm not going to get lucky and beat him unless something happens. He hurts himself on the very first play. There's no way I'm going to beat him. You can tell skill pretty quickly. Same thing with if you're a computer programmer. You're going to know like, oh, does this person know what they're doing or they don't know how to run the program? It's going to be obvious within minutes if someone knows what they're talking about. But with picking stocks, you don't know. The fact is we can go like you and I, Robert, could go and buy.

35:07You can pick a portfolio. I can pick a portfolio. And we may not know after a month, a year, five years, 10 years, I could just get lucky. I could put my money in Amazon in 2002 and you could have put it in something else. And I just held on and I just beat you because I got one lucky pick that crushed all your other picks. And there's nothing you could have done. So luck can overpower skill. And so there's some data. There was a great paper called, I think it's called Can Mutual Funds Pick Stars or something like that. I can't remember the exact name of it, but there's basically a paper, a reference in the book.

35:35And basically they're asking, is there stock picking skill? And they found that they can identify it. They bootstrapped and did all these things. It basically means they just took some data and they tried to reimagine what the distribution of returns looks like. That's what bootstrapping means. And basically they said 10 % of people have actual skill. And that's the number they pick. I'm not saying it's a perfect number. Let's say it's 10, 15%. It doesn't really matter, but let's just use the 10 % figure. So let's say 10 % of people have skill with certainty and it can be identified. And let's assume that another 10 % don't have skill, and we can also identify that.

36:05So we can identify the best and the worst pretty easily. That means that four out of five people, 80%, you're not going to know if you're good. So why would you play this game, pick individual stocks when you don't even know if you're good at it? Who I'm addressing here, I'm not addressing people that say, oh, I'm going to take 5 % of my money and put it in individual stocks. I would consider that fun money, you're doing it for fun, you like doing it, that's fine. Have a ball, enjoy it. I have nothing against that. I'm talking about the people that have 80, 90, 100 % of their money individual stock picks.

36:28I think it's really difficult to do that. And I think the existential crisis is you have to look yourself in the mirror every day and say, am I actually good at this or am I just lucky? And you're not going to know. Unlike almost everything else, people out there doing things, you know if you're good at doing something or not. You have some idea of your skill and your values in most endeavors. It's just really tough for me to recommend that people pick stocks given you're not going to know if you're good. And even if you're good, the best managers, Baird did a study where they found that the absolute best managers will underperform at some point.

36:56So it's like, is that underperformance just a natural lull? Or have I lost my skills? I used to be good and now I'm not. There's all sorts of questions that you're going to just eat yourself up mentally over. And I'm like, why go through all that? Avoid it all. Be a passive investor and be at the 80th percentile. And people say, passive investors have no conviction. Oh, you guys are just, you have no conviction or anything. No, I have more conviction than active investors because I've seen the data. I'm convinced that me just picking the default option of being a passive investor is going to beat 75 to 80 % of people.

37:23And that is why that's important for me, because I have conviction that just doing that is going to win out. And the fact is, most of these stock pickers don't have that. They say, oh, I have conviction in these companies, but they could underperform. So why spend all this time and still underperform at the end of the day? That's the question I have. What I frequently talk about around this kind of idea is it kind of blows my mind that people will graduate college or wake up one day in their 30s or whatever, however old they are, and they'll feel like, okay, I can pick individual stocks today.

37:50I've never studied finance. I've never done any sort of training, nothing, but I can go toe-to-toe with some of the best hedge fund managers, day traders, these large people who have just spent their entire lives dedicated to this one thing. And they think they can go toe-to-toe with them and compete and win. And you just don't see that in any other field. And I think that's fascinating. You don't see that with doctors or lawyers or even accountants or programming. You don't see people wake up one day and just say, oh, I'm going to go do brain surgery when these doctors have committed their whole lives to learning how to do brain surgery.

38:20It's the same in finance. You have hedge fund managers and high-frequency traders and all these guys that have spent their entire lives and careers and money on being good at this. And it kind of blows my mind that people think they can go toe-to-toe with them. Yeah. And I think the last couple of months coming from late 2021 into early 2022 has illustrated who's really good and who's not. Because there's all these tech stocks we're talking about. People are like, oh my gosh, I made so much money on Zoom and this and that and Peloton. And all these stocks are down very badly. And it's like the round trip has happened.

38:49and they went, they peaked, and now they're down. And so you'll find out like, oh my gosh, maybe I'm not as good as this as I thought. So if you're in one of those spaces where you've lost a lot of money on individual stocks, I'm sorry that's happened to you, but maybe it's a wake up call to just be a passive investor and just do something better with your time. Find ways to raise your income. You're going to make more money doing that than you are going to try to play this game. That's why I recommend people do, do something else with your time, more productive, that's better suited for your skills.

39:12Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. We've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle. Just go into your podcast app and type in We Study Billionaires to find our collection of shows. We Study Billionaires is our flagship podcast, and we've made a name for ourselves over the years by interviewing the best investors in the world, including Ray Dalio, Howard Marks, Joel Greenblatt, and many, many more.

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42:30That's theinvestorspodcast.com slash tip-finance. All right, back to the show. And it's interesting for me to even say this because my philosophy has changed so much over the last decade or even more, almost close to 15 years. I started investing when I was 14 and I was entirely all about individual stocks. That was all I believed in. I was like, that's the way to go. I love Warren Buffett. I go out to Omaha. I study him all the time. This is the way. And then over the last, I don't know, maybe it's age, and I'm not that old, I'm only 27. But since I turned maybe 25, so over the last two, three years, I've kind of been trending a lot more towards this passive index ETF approach and really believing in it.

43:10Yeah. I mean, because if you really think about what's the S &P 500 index, you have a committee that's bringing in new companies, dropping it. So it's not the same 500 companies you're buying and holding forever. There is some active management, but you don't have to pay for it. it's done by S &P. So it's really like there's some of that going on. It's really just like, oh, these companies are getting bigger and they're adding them in. These companies are getting smaller, dropping them out. And so there's an active kind of... It's like a momentum strategy if you really think about it. So it's pretty natural and very easy to get into that.

43:36I was working a part-time job in college at a large credit union, and we had an in-house financial advisor who randomly taught me one day about dollar cost averaging. He knew I was a finance enthusiast and was studying it in school. So he decided to come into my office and teach me about dollar cost averaging because he believed in it. After that, I had always found articles to support my idea that DCA is the best way to go. I'm not sure if this was confirmation bias just working its magic or if DCA is truly the best, but after starting this podcast, I've had some guests say they don't think DCA is the best and that they have data that supports lump sum investing.

44:12Your opinion is that no one can beat dollar cost averaging and people should invest as frequently as they can. Break down why dollar cost averaging is the best strategy. Robert Leonard Of course. So I think the first thing we need to address is when we say, I don't even know if you just realized it, but you just referenced two different definitions of dollar cost averaging, and this is nothing that you've done wrong. This is a huge issue in the personal finance and investment community. There are two different definitions of dollar cost averaging, and they mean very different things. So the dollar cost averaging, the original definition, or I think Benjamin Graham came up with, he says, we're just buying over time.

44:44Every time, let's say you get your money in your 401k every two weeks, or twice a month, whatever it is, and you're buying. Every time you get the money, you buy right away. That's considered dollar cost averaging. Every time you get paid, you invest your money. That's dollar cost averaging. But then the dollar cost averaging you just referred to is if someone got an inheritance of$100 ,000 or they sold a business or something, and they have that $100 ,000, instead of putting it into the market right away, they slowly... What I call average in. In the book, I don't like calling that dollar cost averaging.

45:09I call that averaging into the market because you have the sum already and you're averaging it in versus dollar cost averaging. I think the original definition is just buying over time and buying as frequently as you can. So if you really think about it, every time you get paid and you invest in your 401k, you're really doing a miniature lump sum. It's like you took a little bit of money and you did a lump sum straight into the market. Because buying as frequently as you can, that is dollar cost averaging, but really it's a form of lump sum. You're lump summing, but just these little tiny lump sums over time.

45:38And so when we're talking about lump sum versus that other version of dollar cost averaging, which I call average in, lump sum is clearly superior. But that just means buy as soon as you can. Generally, that pays off because markets generally go up. So you want to get in sooner. I've given examples already at the beginning of this podcast, but the data in there is pretty clear. There's basically an 80 % chance that you're going to make more money if you just put the money in now versus if you wait or if you average in over the course of a year. So when I say dollar cost averaging, even God couldn't be dollar cost averaging.

46:06When I'm talking about that, I'm saying market time and trying to pick when to buy dips is less optimal than just buying every single month for forever. So that's the whole idea. Dollar cost averaging, just keep buying are basically synonyms, but just keep buying has less syllables, so it's a little bit easier to say. So that's the whole idea. So I just want to make sure we're clear on definitions because when we start throwing those terms around, people are talking about different things and not even realizing it. And it can be very confusing. And I don't know how to solve this as a community, I'm not going to be like, oh, we need to say this.

46:36I can't make people choose language. I just think we should start saying lump sum versus average in and then dollar cost averaging is like what you do in your 401k or every time you get paid and you buy. You're just buying over time. You're buying as soon as you can. So the main point is to buy as soon as possible. Buy quickly, I think is the phrase I would use. So I hope that clarifies my stance. Yeah, that's a really interesting distinction. I guess for me, when I had a lump sum of money come in, I was like, oh, well, 401k, I average in, right? I dollar cost average in. So I was like, oh, I should do the same thing with this lump sum of money that works for my 401k.

47:07Why wouldn't I just do this with this lump sum of money? So it's interesting to kind of hear this different distinction and different breakdown. Yeah. So I'm saying when you got that big lump sum, you should have put it in right away. So you shouldn't have said, okay, I'm going to take this money and slowly put it into the market because you're not really averaging in your 401k when you think about it. When you get paid, you don't say, okay, I want to take this 4 % of my paycheck and spread it out over the next three months. No, you put it in as soon as you get paid. So as soon as you have the money to invest, you invest it.

47:32That's the key. So as soon as you have the money, you invest it. As soon as you have money, you invest it. That's everything. If you got a big lump sum, you sold something, you have$100 ,000, get it invested. Take some money, whatever you're going to spend on yourself, whatever, and then take all the money you're going to invest and just invest it then. That's the key. Behavioral finance has taught us that most investors are not actually rational when making investment decisions. In fact, most people tend to buy high and sell low. The exact opposite of what we should be doing. Not only should investors actually buy low and sell high, but why should investors buy quickly, which you just touched on a minute ago, but more importantly, sell slowly to take advantage of markets that are generally rising over time?

48:11Well, I think the whole thing with selling slowly is, as I said, if markets, as you just said, if markets are rising over time, then by selling slowly, you're kind of like getting out at higher, higher price. If you sell it all now and it keeps going up, you might have regret. Of course, it could crash as well. So when I recommend people sell things, I think unless you really need the money, like I need to sell this to lock up a certain lifestyle or I need it for something, then yes, you should sell immediately. But if you have stock options, things like that, sell enough just to keep some base level of lifestyle, I would say, just have some base level of lifestyle.

48:42But beyond that, I would say slowly get out of it because those assets generally go up over time. So if that's not true of everything, but over time, most things go up to some degree. And so selling slowly really takes advantage of that. So that's the big takeaway there. I don't really talk about it a lot here on the podcast or really anywhere publicly, but I was not dealt the best hand growing up. There were certainly people that had it way, way worse than me, without a doubt. My dad was amazing and he did amazing, amazing things for me, but I would say that just generally speaking, the hand I dealt wasn't great.

49:14Because of that, I love the quote that says, it's not the hand you're dealt, rather it's how you play your cards. Why is that quote also true for people in investing? Why is saving cash to buy market dips a bad idea? So I think when it comes to how you play your hand and why that's important is because luck matters a lot in investing. I'm not going to sit here and lie to you and say, oh, it's not going to matter. You're going to be fine. There are bad periods. Things happen. If you retired in the year 2000, by 2009, you would have had a bad decade because you retired in 2000, bubble happened, three years of declines, then it starts to come up again.

49:46You think you're in recovery 2007, then 2008 happens. That's a bad decade. So anyone who retired around the year 2000, unless they had just a really ton of money or had way more than they needed, could have had a rough patch there. So that definitely happens. And so it's just thinking about, are there other things you can do to information? Things are going to happen to you that you can't control, but it's how you react to that information that really matters. That's true of everything in life. I can say something to you right now, Robert, that you may not agree with, and you can just be okay with it, or you can get really upset.

50:12And there's different ways you can even react to it. That's something to think about. In terms of your question about why shouldn't people save cash for buy dips, we've gotten into that a little bit. And it's basically just people are doing that, you're holding that cash, expecting some big dip to happen. And I just think the data shows that big dips are rare. And even when they're happening, you're going to be least likely, you're going to be least enthusiastic to buy during these crashes. You're like, I want to get a better price. You're going to wait until it's even lower. And a lot of times, you're not going to be able to time it properly, and then it might just rip back upward.

50:37And then you're left in the dust. Mark Treyfus Marks 20, 2020 is a perfect example because it happened so quickly. And then it was over within five months from the bottom. We're already at a new all-time high. It was so fast that people had no clue what hit them. And it was a perfect example of why doing that type of strategy is not optimal. Warren Buffett says that we should be investing when there is blood in the streets. Typically, there's blood in the streets in times of trouble or when the markets are crashing or there's a recession or maybe even a pandemic. Why are market crashes not something to be afraid of?

51:04Rather, they are actually usually buying opportunities. How do people survive and thrive during market crashes? The funny thing is I just said, don't save up cash to buy dips because they're so rare. But in the event that you just happen to have cash, you happen to have something happen where you have extra investable cash and there's a dip, it's probably one of the best things you can ever do. Now, a big dip that is, right? And the reason for this is just simple math. If you think about every X percentage decline requires a larger gain to get back to even. If you have$100 and it goes down to 50, you just decline by 50%.

51:38To get back to even from 50 to go to 100, you need 100 % gain. So the gain is even bigger. So as long as you assume that markets generally recover, and I think they generally do, this is not true of every market. Greece right now is still down bad from where it was in 07, 08, rushes down 80 % in the last few months. And it's like, will it come back? I have no clue. This could be an existential thing for them. There are exceptions to this rule, but if you're diversified, that even if you have one that goes to zero, so to speak, you'll have other markets where you can make money. As long as things generally recover and you believe in the long-term progress of humanity, civilization, economic growth, then I think the economics make sense.

52:14If you're buying at a 50 % discount, you'd have 100 % gain. The question is, how many years is that going to take? It takes one year. Who doesn't want 100 % annualized return? I would have raised your hand. Everyone wants that. Even if it's two years, okay, the annualized return, it's not exactly... I'm just going to use this linearly. This is not the exact math. 100 % over two years isn't 50 % each year, but it's close. It's probably like 40-something percent because it's compounded on itself. Yeah. Well, if it takes three or four or five, the bigger the drop, the bigger your annualized returns are to the recovery.

52:40So if it takes one year, it's 100 % return. If it takes two years, it's kind of like a 50 % return. Even if it takes four years, you're looking at 25 % annualized return. So even if you bought at that 50 % dip and you waited four years, when you bought all those dollars in expectation, like if they did recover in four years, are getting roughly like a 20, probably 2 to 25 % annualized return, which is great, which is like double the market average. So who wouldn't want that? So you see that once you just start looking at the math, it's obvious like, oh my gosh, dips are such an opportunity as long as you assume there's going to be a recovery.

53:09If you think that things will eventually recover, then they're huge opportunities. Robert Leonard One of the parts of your book that is uncommon advice is where you say that people shouldn't max out their 401ks without considerable thought. Why do you believe against the common narrative that 401ks possibly shouldn't be maxed out? Robert Leonard I mean, of course, there's cases where it makes sense to max. If you're in a, look, for example, you're in a high tax state now, you know, you're going to be in a low tax state in retirement, taking advantage of that different tax or where you're like the state income tax is very high.

53:38And then you go into a place with zero, that's a huge ARB and you've got to take advantage that you should take advantage of. So yeah, I think the issue is when people are thinking about maxing out their 401k, they're not thinking about, okay, what are the fees involved and how much benefit I'm actually getting by locking up my money until 59 and a half. And so I actually calculated this on average, and I do this for a Roth 401k. I'll explain why in a second, because I only care about you avoiding the capital gains. The difference between choosing traditional and Roth is a separate discussion.

54:04We can get into that in a moment, but just on the Roth, it's like the post income tax. We're not looking at the income tax we care about. We only care about the capital gains because the whole point of a 401k is you're avoiding the capital gains that you have to pay in a brokerage account. You're only getting, I say the estimate I give is like 73 bps. So let's just say 70 bps, 0.7%, which is not a ton. It's not nothing, but it's not a ton. Now that assumes similar fees between the 401k and a brokerage account. A lot of times your 401k all in is going to have a lot of extra fees. And for example, if you had a 1 % fee in your 401k, like for your funds or just the 401k fee itself, you're now the benefit above the match.

54:38I think everyone should go to the match for the record. Everyone goes to the match. The benefit of all the dollars above the match is now negative if you have a really high fees in your 401k. Because think about it, you're paying that 1 % fee to get a 70.7 % tax advantage. It doesn't make sense. You're losing. It's negative tax alpha. I think a well-managed brokerage account can actually be where there's more flexibility there. You can move the money around, do things you want to do. I'm not saying people should never max out their 401ks. There are exceptions where it makes sense. For example, if you're in New York or California and you're having really high state income tax, but you plan on retiring in, let's say, Florida or Texas, where there's no state income tax, there's things like that where you're avoiding a higher tax now with a traditional 401k and then paying a lower tax when you pull the money out in retirement.

55:18So there are exceptions, but even New York has exceptions where they allow a certain amount of money for you to apply your 401k tax-free. Really, you need to talk to a tax advisor for this stuff. But I just think the issue is max out their 401k is dogma across the entire industry. And I think I'm one of the first people to like, is this even right? We'll go back to first principles. Does this actually make sense? I analyze the numbers and I'm not so sure for everyone. I think a lot of people don't even know their 401k fees and they just max without even thinking about it and they haven't dug into the numbers.

55:43So I'm saying like, really spend time on this decision because I regret doing it because I maxed a lot and it's great. My retirement savings look great. But now like, okay, I don't have the money, for example, for a down payment because I put all that money to my retirement. So it's one of those things where like, and I can't really get that money out now. And so without paying penalties and fees. And I know you're saying, well, you can pull out 50K for down payment. There are exceptions to this. There's all these exceptions and I get that. But for me, I think it's just dogma that's just thrown out there without actually considering whether it makes sense for a lot of people.

56:10So spend time on it. I know it's annoying to look through documents and do all that stuff, but really you got to spend time on it and figure out if it's right for you. So that's my whole point. It's just think about it a little bit more. Such a great point because this is just one of many, many, many, many concepts that people in the financial world that are considered experts will throw out there and people just kind of accept that it's gospel and just expect that it's 100 % true. And I mean, maybe it's true for some people, but financial advice is very rarely uniform. And almost every single person has a different situation that needs some sort of tweak.

56:40I agree. And that's kind of what I try to do with the book is just attack everything with data and say, what's the truth? Obviously, there's always exceptions and there's a lot of nuance in a lot of these arguments, but I'm just trying to say, what's actually going on here? And I care about trying to find that truth, whatever it is. And that's what I care about ultimately. And so I'm not so sure maxing out 401k makes sense for a lot of people, especially those who are high income and young. That money could be used for other things. I think there's a lot of high income young people that are just like, oh my God, max, max, max.

57:05I'm just like, you need to think about that a little bit before you do that. Lifestyle creep and comparing ourselves to others makes it extremely difficult, if not impossible, to ever be satisfied financially. Why do you think people will never feel rich, but actually think that's okay? So I think people never feel rich because they're always comparing themselves to other people. in the example I gave in the book is Lloyd Blankfein, who's the ex-CEO of Goldman Sachs. And he was interviewed and they said, remember, he's a billionaire. This guy's a billionaire. And they said, are you rich? He's like, I'm not rich.

57:34I'm just well-to-do. I'm just well-off. I'm not super rich or anything. I think his argument seems kind of outlined. He's like, you're a billionaire. How can you say that? But when your best friend is like David Geffen and Jeff Bezos and people who have 10, 100x your wealth, you're not going to feel that rich. When you can't afford a$600 million super yacht and they can, you're not going to feel as rich. And so the argument I'm going to make here and the argument I'm going to make in the book is like, okay, if you had$93 ,000 in net worth, you're in the top 10 % of the world. I would consider you rich if you're in the top 10%.

58:03I would consider you a rich person relative to humans. Relative to all humans, you're rich. And now if I say, okay, oh, you have$100 ,000 net worth? Oh, yeah, you're rich. And you're saying, Nick, but that's not fair. You can't compare me to people all over the world. You can't compare me to like, I don't know. I usually use the example of a farmer in Bangladesh or some person in, I don't know, India, whatever. But there's these different places of the developing world of people where there's extreme poverty. You can't compare me to them. Well, guess what? Lloyd Blankfein probably thinks that you can't compare him to us, regular people.

58:32He's like, you can't compare me to those regular people. You have to compare me to the Jeff Bezos and the David Geffins of the world. His argument is obviously more outlandish than the argument that you and I might make like, oh, you can't compare us to these people all over the world. But it's the same argument. We're just cutting hairs. We're like, what is rich really? Where do we stop the line? So a thing I like to say is I identify as rich. Globally, I identify as rich. And I think you have to think that way because if you don't think that way, you're going to always be on that treadmill and you're always going to be trying to get from all.

58:59I'm not a millionaire as I've talked about before. I'm not a millionaire. I'm not financially free where I can never work again. I still have to work, but I still identify as a rich citizen of the world. And I have to think that way because if I don't think that way, I'm not going to understand my privilege. I'm going to keep chasing money and maybe I'll never be happy. So I think just realizing how well you have it off relative to others is a great way to just have some perspective. And that's what I said. I don't mean to say I'm rich and I'm boasting. It's not like that. It's a mindset so you can psychologically better understand money and better understand how you think about these things and how you feel about yourself.

59:31And so you're not always chasing it. You can escape the prison that I think a lot of people are in. And that's what I'm trying to help people do in the book. I've never been one like you to really say, oh, I'm rich. I don't go around to people saying, oh, I'm rich or my parents or anybody like that. But it's interesting because I think my philosophy without ever really having thought about it or even verbalizing it, I think I feel the same way as you do. I think inherently I act like I know I'm rich against the rest of the world, but I don't necessarily publicize that. So it's interesting without me even having known this concept or thinking about it, it's just kind of inherent in how I've felt about money and how I try to always be humble and grateful for what I do have.

1:00:08Yeah. And I don't go around saying like, hey, nice to meet you. My name is Nick. I'm rich. I don't say that. It's obviously, that's crazy. I'm just saying, I'm saying in a way of like, you have to think about yourself and identify where you are in the world. We're all in bubbles, right? And I realized I'm in one of the biggest bubbles and I have to constantly remind myself of the bubble I'm in. Otherwise, I just will never see the truth and always be blinded and be like, I'll feel poor my whole life. And it's just silly. It's so silly to me. So I'm like, just have some rational, objective standard of truth that you have to live by and realize how well you have it.

1:00:39Because then I plan... There's a lot of stuff I want to do with philanthropy eventually, and I'm not there yet, but I'm almost there. And that's the kind of thing where I start to think about that stuff. And that for me is something I really care about eventually. Yeah. It's interesting. I felt the same way without ever having realized it. I never thought about this, but I've just felt that way even without knowing it. So great concept. Before we close out the episode, I want to give you a chance to tell the audience where they can go to connect with you and learn more about your work, pick up your book, anywhere that people can connect with you.

1:01:07You can find me on Twitter. My handle's at dollarsanddata, just all one word, dollarsanddata. Or you can find me at my blog of dollarsanddata.com. My book will be available on Amazon. Just keep buying if you're interested. Obviously, it's a data-driven guide to personal finance, but I promise it's very accessible. There's a lot of stories. It's an easy read. It's not like you're not going to be overwhelmed with spreadsheets and numbers and stuff like that. There obviously are a bunch of numbers and charts, but I think it's done in an accessible way. It's a very easy read. So that's kind of always been my goal is to make it very easy.

1:01:35My grandmother can even understand it. Not all of it, but she understands most of it. And I think that's the key. It's like if she can read it and be like, oh, I get that. I was like, perfect. Okay. I'm at the right level there. So yeah. But I appreciate you having me on the show and just want to thank you guys for your time for everyone who's been listening. I really appreciate your time. Thank you. I'll be sure to put a link to your website, your Twitter, your book, everything that you're working on in the show notes for anybody that's interested in checking it out. If you're watching the video version, I'm holding up a copy of this book.

1:02:01I was able to give it a read. I love the book, so I recommend you guys go in and check it out. Nick, thanks so much for having me. I appreciate it. Yeah, I appreciate that, Robert. Really appreciate you taking the time for that. Thank you. All right, guys. That's all I had for this week's episode of Millennial Investing. I'll see you again next week.

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