MI299: Index Investing Simplified w/ Nicole Lapin

0:00You're listening to TIP. Yeah, these are the greatest hits stories that people tell themselves to say that they can't get their financial life together. I don't have enough money to start. I'm bad with numbers or I'm bad with math or I'm too old. Those are like the three greatest hits usually. And you don't need a lot of money to start. You just need the most time possible. And are you too old? I don't know. Like you're never as young as you are today. So today is the best day ever to start because you'll never be younger than you are right this moment.

0:56Nicole Lappin is the author of five books on personal finance and is the founder of the Money News Network. She hosts the Money Rehab with Nicole Lappin daily podcasts. Nicole was also an anchor for CNN and CNBC. Now she spends most of her time helping educate people to improve their financial situation. Nicole has done a great job of sharing her own experience from being broke and in major credit card debt to being financially independent. What I like most about her is her ability to simplify complicated financial concepts into easily digestible tidbits that anybody can understand. If you've been on the sidelines about your finances, then I'd highly recommend checking out this interview as she has some very simple and practical tips to help get you started.

1:37Now, without further delay, let's get right into this week's episode with Nicole Lappin. You're listening to Millennial Investing by the Investors Podcast Network, where your hosts, Robert Leonard, Patrick Donnelly, and Kyle Greve interview successful entrepreneurs, business leaders, and investors to help educate and inspire the millennial generation.

2:08Welcome to the Millennial Investing Podcast. I'm your host, Kyle Grieve, and today we bring Nicole Lappin onto the show. Nicole, welcome to the podcast. Thanks so much for having me, Kyle. Nicole, you've written a ton of books. Your most recent one, Miss Independent, and did a wonderful job at helping readers take control of their own financial health. What has inspired you to make it your mission to simplify financial concepts for people willing to learn? Well, thank you for that. My mission started because I knew nothing about finance or personal finance. We don't learn this stuff in school.

2:40I grew up in an immigrant family, so I didn't talk about any advanced money concepts, much less like basic money concepts, mortgages, credit cards, all that. I didn't even learn that until after college. And I went to a fancy college and took economics classes and stuff like that. But I never learned any of the practical stuff that you actually need to have to be an adult and have your financial life in order. So I wanted to make it my mission to teach my former self, this girl who was super clueless, who was smiling and nodding and not joining basic money conversations. But she was smart and she had figured out harder things in life.

3:21And it wasn't her fault that she didn't learn about money. But now that I know about money, it became my mission to make sure that other people didn't make the same mistakes I did. So as you pointed out in prior interviews, most people don't learn financial literacy in school, like you just said, whether that's elementary school, high school, post-secondary. And very few people have the luxury of having parents who can pass down financial wisdom to their children. Why do you think it's so difficult for people to try and learn financial literacy on their own? I think it's just something we don't talk about.

3:54I think it's really taboo. It's probably our last taboo, Kyle, that we still have. Like, we'll talk about just about anything before we talk about money. I'll be out to dinner with my girlfriends and, you know, we'll talk about all the dating and all the everything. And then I'll ask them, you know, what's in their banking account or what they're making this year. And it's not because I want to shame them. I certainly don't. I want to help them. But it becomes crickets, you know? And I'm like, wait a minute. We just talked about something super personal. And now this is crickets? Like what's in your savings account is crickets or what you're investing or not investing is crickets.

4:32And it shouldn't be that way. Because I think if we open up this dialogue, we get over this intimidation factor that that all of financial news and information is just full of a bunch of jargon. It is a bunch of jargon. But once you can speak that language, you can join the conversation. It's like any language, really. If you go to Japan and you don't speak Japanese, you'll be really confused. You go to Wall Street and you don't speak the language of money, you'll be really confused until you speak it. And then you're like, duh, that was obvious. You just don't remember it because now you know it.

5:07You didn't remember the time when you thought it was jargon and crazy and you were clueless. And so it's really about just joining that conversation. I think the jargon is the thing that keeps people out of the conversation the most. So let's say I haven't saved a dime in my life and I have no idea what I want to do with any money that I begin to save. What would you say is the most important point you'd make to someone in my position that would just blow my mind about saving money and trying to compound it? Yeah, I think compound interest is a great wow factor, right? Compound interest is this amazing force.

5:42And so often it's been used against us in the financial system. So we're used to it with credit cards and mortgages and whatever where we're taking on debt, but it can be used in our favor when we invest. And so that same force that makes your credit cards snowball all out of control and become bananas in no time, that same force can be used in your favor if you're investing money. If you're putting money away, then you can take advantage of that amazing force. So I think one example could be if you put$100 a month away, starting at 25, by the time you retire, you have a million dollars because of compound interest.

6:22But if you just started 10 years later, and that's 100 times 12 times 10. So 12 grand, like it's still a good amount of money, but it's nowhere near the amount that you would lose because you waited 10 years. So if you waited 10 years, and you're 35, and you put 100 bucks a month in an S &P 500 index fund, which we can talk about, like just basically something that tracks the market, then you'd have 300 grand by the time you retire. Like 300 grand is a lot of money, but it's not the million that you could have gotten if you put 12 grand in over that last decade. Yeah. So that's this beautiful, amazing, wonderful, brilliant force of compound interest that you can use in your favor and literally just make your money work for you while you're sleeping, while you're doing nothing.

7:07You work so hard for your money. I think it's time to return the favor. Absolutely. I agree. So before we get into index funds, I have one other question. So I really enjoyed some of your points on some of the stories that you discuss that people give themselves who are trying to rehab their finances and make these stories up as a reason to not take care of them, whether that's, I don't have enough money or I'm not a math person, et cetera. Why do you think people tell themselves these stories in the first place? And how can they reframe these stories to help them improve and save? Yeah, these are the greatest hits stories that people will tell themselves to say that they can't get their financial life together.

7:43I don't have enough money to start. I'm bad with numbers or I'm bad with math or I'm too old. Those are like the three greatest hits usually. And you don't need a lot of money to start. You just need the most time possible. And are you too old? I don't know. Like you're never as young as you are today. So today is the best day ever to start because you'll never be younger than you are right this moment. And so yeah, like a numbers math person, I started as a poetry major, Kyle. Like I started as a poetry major. I didn't know anything about math. The basics that you need to get your financial life in order, you don't need a graphing calculator.

8:23You just need basic, a fifth grader can do the math. It's the humanities part. It's not the math part that actually is the thing that trips you up the most. It's the relationships that are the hardest to navigate. It's not the physical, can you put this into a budget? You don't need to also calculate a lot of this stuff. I went through the CFP program and like needed to actually calculate manually all of this interest and all of the taxation and blah, blah, blah, you just put it in the calculator. You don't need to calculate bond yields and stuff like that. Like it just shows you on your brokerage app.

8:56And so it's not that stuff that trips people up. Really, if you like peel back the onion and get to the heart of it, it's how to talk to your friend about paying you back or how to talk to your significant other about a prenup or a postnup or a will or a trust or stuff like that. It's the interpersonal workings of money. That's the hardest part. It's not the math or the numbers. So let's transition now to index funds. So I want to introduce this part because you had a really good story in your book that you discussed about Tiffany's, which I absolutely love. So just a little backstory before you tell it in more detail.

9:33So you were bullied a little bit as a kid, And then you basically discussed how you got an email from your bully and then you were going to go to Tiffany's. Anyways, yeah. So can you let me know a little bit more about that story again for my audience? And then also discuss how you've used that story as kind of a mental model to improve your thinking about money. I grew up not having money and the girl, the popular girls, like had all sorts of stuff that I didn't. And I'll never forget this like chunky Tiffany bracelet with like the dangling little heart on the bottom of it. And to me, that was like, oh, my gosh, I could never buy something like that.

10:09That's amazing. And when I was bullied by these girls growing up, they would make fun of like my fake Doc Martens. This is when I was growing up. Doc Martens are cool. They called them Nurse Martens because they like didn't have the little thing. All this stuff that, you know, happens when you're coming of age. And you remember all of this stuff so much more because you're feeling these things for the first time. And so like, I don't know what I ate for breakfast or like what I did last night, but I remember these girls names. I remember all of these moments so, so vividly. And so I graduated, of course, went to college, quickly started working in broadcast news, and then quickly worked up to the network level.

10:52And I was anchoring on CNBC and doing reports on the Today Show and all of this sort of like high profile stuff where people would watch it. Like I always am amazed when people watched stuff on TV because like, you don't really see all those folks. You just see a camera. And so I got a note one day from her, this bully. And my heart sank. And at this point, I had done some therapy. I was a grown-ass woman. I was talking to CEOs and politicians. I wasn't intimidated by anyone at that point. I had grown and really found comfort in my skin. And I see this email from her. And I am like, oh my god, I am transported back to being like this teenage girl who is so scared by whatever this note is going to say.

11:45And she said something like, hey, congrats. Can you help me with my career or something like that? Like, it's so great to see you do well. And I'm like, what do you mean? You're like, do I know all these terrible things you did to me and said to me and you know, whatever. And so it was a catalyst at that moment to like do right by my former self. And I thought, you know what I'm going to do? Like I am going to go get that freaking bracelet once and for all. Like I can buy all the bracelets. I could buy like probably like the whole counter at, well, definitely not like any counter at Tiffany, but like the sterling silver counter I could handle.

12:23And so I went over, I was in New York, I went over to Tiffany And I'm like, you know what, I'm going to feel vindicated. I'm going to feel like I made it or something or like I'm laughing last. Like I got this stupid Tiffany bracelet. And I went there and I was like, you know what, I could get like all the Tiffany bracelets on my hand. And I was like, you know what, instead, I left and I bought Tiffany stock instead. And now with that Tiffany stock, I mean, it wasn't very much, but it appreciated so much more than I have worn that bracelet much after that year of vindication and it would have collected dust somewhere.

13:01And I felt much more vindicated because that was like a moment where I could say, not only do I feel empowered by what I've been able to accomplish, but I also now have the acumen and the wherewithal to make a really, really smart decision that's going to pay dividends later on, literally. Let's take a quick break and hear from today's sponsors. Even Einstein had blind spots. That's why modern science is built on the idea of peer review. Investing may be more art than science, but that doesn't make peer feedback any less valuable. The tricky thing is finding qualified people who are interested and willing to help vet your investment ideas.

13:43That's why we built the Intrinsic Value Community. It's a place to connect, share ideas, learn, and get feedback. Nobody ever wishes they'd spent more time buried in spreadsheets, but connecting and building relationships with others who may be smarter on a topic than you, but who are also schooled in value investing, that's valuable. We make spots in this exclusive community available in cohorts every few months. And last time around, our 30 available spots filled up pretty quickly. If you're interested in our next cohort, which will be even smaller, you can join the waitlist at theinvestorspodcast.com slash intrinsic value community.

14:17That's theinvestorspodcast.com slash intrinsic value community. Support for the show comes from public.com. You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side. The point is you're engaged with your investments and public gets that. That's why they built an investing platform for those who take it seriously. On public, you can put together a multi-asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there. Plus, industry-leading yields on your cash with no fees or minimums.

14:55Switch to the platform built for those who take investing seriously. Go to public.com slash TIVP and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash T-I-V-P. Paid for by Public Investing. Full disclosures in podcast description. Just like everybody else, there was a time when I was a beginner investor, and I have to say, investing is particularly filled with jargon that can just make it so difficult for new investors to understand what is going on. But it's never too late to get smarter about stock investing from the ground up. At The Investors Podcast Network, we've made a habit of studying the world's best investors, and now I'm distilling those learnings into a simple course for you, or for anyone in your life who you might want to share the gift of knowledge with.

15:38With my How to Get Started with Stocks course, you can master the principles of excellent lifelong investing with valuable insights for both beginners and pros. The course covers 10 different sections, beginning with the basics of what a stock actually is and how the stock markets work, to strategies to optimize your retirement savings, how to pick great companies for the long term, what to look for in ETFs, and how to monitor your investments, plus so much more. To begin getting smarter about investing, just visit theinvestorspodcast.com slash get started with stocks. That's theinvestorspodcast.com slash get started with stocks.

16:14And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. Yeah, I love that story. It's funny when you understand how powerful compounding is too. It's like everything's an opportunity cost. It's like, yeah, you could have spent a couple hundred bucks on this bracelet or you could put a couple hundred bucks in the market and it's probably going to do a lot better than a bracelet would. Totally. And by the way, like I'm not saying don't buy the bracelet because also get the bracelet. I have a lot of bracelets as well. But yes, when you think about like buying an iPhone or something and how much like Apple stock, I wish I would have bought a ton of Apple stock when I was starting to report on technology.

16:53Oh my God. I remember reporting when Gmail first came out, when the iPod came out, like it was nothing. I didn't know. I wish I could go back. Like that's why I try to do this to help others? Just like in that moment, if I bought some Apple stock, I mean, I would still be talking to you because like at this point, I don't do it for the money. But yeah, it still hurts. So I know that during the pandemic, you got your Twitter or XDMs flooded with people asking if they should buy XYZ stock. And from your responses that I researched, it seemed like most of them were the same. It was forget stocks and go with index funds and chill.

17:31So can you expand a little bit on the system for the audience? Yeah, index funds and chill. Netflix and chill is also cool too. The DM slips, the not so fun and sexy kinds that I get were like, should I get Zoom or should I buy Nvidia or whatever? And this was mostly from people who were buying into the market or starting to invest for the very first time. And I understand why you would want to say that because the impetus is to get rich quick. What can I buy really quickly? That's going to make me a bunch of money. And I don't like fun, sexy times with my money. I like boring, boring, slow and steady times.

18:14I don't want to gamify it. I don't want to do some crazy crypto thing. I don't want to do anything wild. I just want it to stay growing nicely, safely. And that's what I suggest to first time investors to instead of looking for like the hot stock that they're going to put their money in, you know, look at an index fund, which is a basket of a bunch of different stocks. It follows an index. So an index, and I'm sure your listeners know is, you know, something that tracks a bunch of different assets. So like the S &P 500 is an index, the NASDAQ is an index, indexes or indices, the jury's out on that one.

18:53But there are a lot of different indices, right? indexes. And when you buy into the S &P 500 index fund and S &P 500 index fund, there are a lot, there are a lot of different tickers. By the way, this is another question I get because then people will say, okay, well, I searched index fund and my Schwab portal or whatever. You need an actual ticker symbol to buy into an index fund. And index funds can be like mutual funds or ETFs, which are exchange traded funds that you can buy and sell like stocks, but you're getting a diversified exposure to the stock market just by buying one thing. And what's cool is that over time, the market, and when people say the market, they mean the S &P 500 as a broad barometer of the market, has beaten what fund managers say they can do to beat the market time and time again.

19:44A majority of fund managers do not beat the market. So why then try to beat it. Just join it. Just buy it. And so that's what I often said. It's like what Warren Buffett put in his own will for his own wife to do with their money, like put a majority of it in low cost S &P 500 Vanguard. Like you can buy Vanguard, you can buy other stuff. Index funds. So that's where my like mug, some of our swag says index funds and chill. Excellent description. So one of the biggest problems that investors have, whether that's stocks, indexes, crypto, etc., that they panic when prices drop and they end up selling.

20:20So what advice would you give to those who have had bad experiences in the stock market before, but maybe you want to start trying again and getting some money in there? Yeah, I would say dollar cost average, which is just fancy terminology for putting little bits of money in at regular intervals so that you are safeguarding yourself from the fluctuations of the market. So this adage on Wall Street, one of the futurism's buy low, sell high. Another one is like, it's better to beat low expectation. Great. We don't know when the low is. We don't know when the high is. That's the problem. And so when you, let's say, have$1 ,200 and you want to go try to put your money in the market, instead of putting$1 ,200 in the market today, we don't know where the low is.

21:05We don't know where the high is. If it's at a low, we'd be stoked that we bought today. If we could zoom out to a chart. If it was at the high, it would be pretty annoyed. Instead, you take that$1 ,200 and put$100 in the market every month for the next year. And over time, you're going to get the average of what the price would be over that period of time. So this dollar cost average idea is basically just you have some money, put it in at different periods of time, and overall, you'll make up for the ups and downs of the market. Love it. So my dad is one of the most risk averse people I know, he has all of his savings in bonds instead of indexes because he doesn't like seeing his portfolio drop at all.

21:46So I'm always trying to get him to get some exposure to the stock market as bonds, you know, it barely beats inflation. But what advice would you give to those who think indexes are too volatile to invest in? Well, bonds are rocking right now. Like bonds and CDs are doing okay right now. So you're dead. Well, I understand that he's done it for a long time. So he probably didn't make a lot of interest. But look, like there are bad years for the market for sure. And the point of being invested into the market via index funds, for instance, is to have growth over time. The optimal part of that sentence is over time.

22:24It's not a quick thing. It's not, I'll put my money in and, oh, you're saying it's going to make 7 % to 10 % in the market. Cool. So does that mean 10 % next month? I'm just going to get it out. sweet, I get this great return. No, no, it's over time. And so inflation adjusted, you're probably looking at about 7 % over time. You have to really put your blinders on for this. And if you have that time, if you have that long time horizon, then the market has historically, I like to look at big swaths of data, has historically returned that great percentage over time. And so that's what I would say to anyone who's trepidatious about going in the market.

23:07If you feel like you're going to check your brokerage every single day, then I don't know, maybe like your mental health is valuable. And maybe you want to take some baby steps. In my last book, I went from lowest risk to highest risk. So putting your toe in the investing water with money market accounts, money market funds, CDs, bonds, treasuries, whatever. And then getting into more risky assets. So the higher the risk, the higher the reward too. And then you get to really cuckoo stuff like currencies and commodities and crypto and VC investing, which is really, really, really risky. And if you have a little bit of money to play with, that's not the place to start first.

23:56Yeah. And then so in terms of let's say for people who maybe are a little bit older, like my father, who's getting into his 70s now, would you do the traditional stock bond mix where you have that, you know, the same percentage of your age and bonds and the rest in stocks kind of thing? Or do you do you know, do you not subscribe to that theory? I think it really depends. I think that the rule that you're talking about is putting like if he's 70 than putting your age in bonds. So like 70 % in bonds because he's older. And so like historically, that's been risky. It's really hard to come up with a hard and fast rule around this stuff, especially without like seeing a bigger picture because maybe something else might be more advantageous.

24:37But if you're just starting out, that's like a really good rule, easy rule of thumb to start with a portfolio. And then well, bam, you have a portfolio. So like I'm nearly 40, which is crazy. So like for easy math, right? So 40 % in bonds, 60 % in equities or stocks. And then all of a sudden, I have like a portfolio with different things that I like at the end of my next year on this planet, I rebalance it and I look at see like how much are in each. And then I say, okay, well, there's like now after a year has gone on, there's a little bit more in bonds. And so it's like trimming the hedges, you just like sort of pruning and then getting back to something that is a good benchmark for you to build from.

25:24That's all it is. Yeah, that makes sense. So a lot of our listeners are maybe not necessarily beginner investors and do own some individual stocks in their portfolios. How would you suggest people optimize their mix of index funds and stocks if they want to go with having individual stocks? That's a case-by-case preference, really. I have individual stocks and I have index funds, And I have a bunch of different kinds of index funds. And I would say before getting into a new sector, look at a fund for that first. So if you're like, I'm really hot to trot on technology right now, look at QQQ instead, which is the fund that tracks the NASDAQ.

26:04Or if you're like, damn, I'm really excited about some semiconductor company or something or mining. I want international exposure. I just feel like there's a fund for everything. And sure, You want to buy some Berkshire stock? Go for it. If you feel like that's going to just be a sure thing forever and ever in the end or whatever else, I would just keep it to a reasonable amount of what you have invested in equities. And reasonable is not for me to decide. Let'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.