Why Building Wealth Is about More Than Money, With Jack Raines (EP.267)

0:02The Long Term Investor Host:We all need to make smart decisions with our money. The Long Term Investor podcast shows you how by distilling complex financial matters into easily digestible lessons. And now here's your host, chief investment officer at PlanCorp and the author of Making Money Simple, Peter Lazaroff. Welcome back to The Long Term Investor. In this episode, I'm joined by Jack Raines, author of Young Money, for a conversation about what happens when traditional financial advice focuses too heavily on accumulating money and not enough on using it well. We discuss why time may be a more valuable asset than money, how the fire movement gets it wrong, how to distinguish uncertainty from genuine risk, and why a good life may be best measured by the memories and moments of nostalgia created along the way.

0:54The Long Term Investor Host:As always, you can find detailed show notes at thelongterminvestor.com. And as a reminder, I have a book of my own coming out. There is a link at the top of the episode description where you can sign up for exclusive updates, promotions, subscriber-only webinars, and all other sorts of great stuff. That email comes out every other Saturday. It is different than my normal email. So again, there's a link at the top of the episode description, or you can visit theperfectportfoliobook.com. And now here is my conversation with Jack Raines.

1:30The Long Term Investor Host:Jack Rains, welcome to The Long-Term Investor. Peter, thanks for having me. So congrats on the new book, Young Money. I've been following your work for a long time, and I'm hoping we can talk about what I felt like was a big takeaway for me from the book, which is just that long-term investing is not necessarily all about just having the largest portfolio. You really dive into how to allocate money, time, opportunities all across different life stages. But let's start with sort of your entry into investing. You tell a story about turning a$6 ,000 Roth IRA into nearly$400 ,000 and then losing half of that money from the peak.

2:09The Long Term Investor Host:So maybe tell us a little bit about what that experience taught you about money that anything in terms of making money never could. The first thing it taught me hilariously is when I had to meet with my accountant or my dad's accountant like the following year and he was looking at it, He was like, there were like 120 trades in my Roth in like year 2020 that kind of led to that. And his big takeaway was you should never gamble with your retirement account. But I guess if you are going to gamble, if you do it in your retirement account, at least you don't have to worry about taxes. So my terrible financial advice to everybody is if you're going to speculate, like I don't think it's horrible with your Roth.

2:46Because if you do make money, you don't have to figure out capital gains. Then if you lose money, you could literally only lose like that contribution if you're like 23. on a serious note, don't do what I did. But yes, I did. I graduated college in December 2019. Obviously, January 2020, February 2020, COVID happens. I'm working remote corporate finance, like not in the office, really bored. And I figure out what a SPAC is. And basically, for people who don't know, it's like a shell company that provides an alternative path to go in public from a traditional IPO. And I was buying SPACs and SPAC warrants, which are like, options.

3:25And it was a bubble. I was really good at play the bubble. I did turn six grand into 400 grand at about nine or 10 months. And then I also, a few months after that, lost 150 grand at about five minutes. So I can tell you a lot of things I learned from that. The first is when your dad calls you when you have 400 grand and says you should put an index fund, you should probably listen to him. The second one is like, no matter how good and euphoric making money feels, losing a lot of money will make you feel horrible and just like you just feel like an idiot like it's such a just like whack on your uh your your sense of like intelligence that um i don't know i i've like not really i still buy some stocks here and there but i've not actively speculated sets because the the the emotional roller coaster of just constantly trading stuff in your personal account is just like excruciating.

4:19The Long Term Investor Host:Like it is just like mind numbingly, like all consuming. You know, I started my career as an individual stock analyst and had a bunch of individual stocks myself. And now my portfolio is just ridiculously simple. It's one fund across all accounts. And I there's only been a couple of times I started in 2007. So during the financial crisis, a lot of times if you could just buy a company that was priced to go bankrupt and didn't end up going bankrupt, like you made a lot of money. And the only time as an investor, I felt like I've seen similar instances was COVID like 2020. There were, you know, some individual stocks where I resisted the urge to buy.

4:58The Long Term Investor Host:I stayed the course with the boring plan. And had I gone down that route, you know, there it's fine to entertain yourself a little, but I think what you kind of call out in the book and I feel to be true is like, it's not so much about like the bad trade that lost a lot of money. The bad trade, I think you're arguing often, is like you spend hundreds of hours and you lose sleep over like the decision to trade or not to trade or do something. So like, I guess, how do you know, like how does an investor know when investing has stopped really serving your life purpose and more just started consuming it?

5:31It's a framework I use a lot in the book. It's just also like how I think about life in general is like everything is a matter of opportunity costs. And if you want to go like in a pure investment, mindset. There's like, what's the opportunity cost of like this investment versus that one? Like what's your cost of capital, whatever. Um, but it applies to a lot more than money, right? Like what's in the biggest opportunity cost, I think is like opportunity cost of your time and how you spend that time because money is a pretty fungible thing at the end of the day. Incomes go up and down. Network can go up and down, but like time is a constantly depreciating asset.

6:05And if you find yourself like spending hours and hours a day, um, like thinking about stocks, analyzing stocks, and it's not a full-time job. You're not an equity research analyst. You're not a hedge fund analyst. This isn't what you do for a living. That both takes away from other things you could be doing to enjoy your life. It also takes away from developing skills that would help you increase your income, which would actually probably cause your net worth to compound over time. I don't know. If you have a portfolio of$50 ,000 and you can generate 100 % return, great. You make 50 grand. There's probably a lot of things you could have done that would have led to you being able to increase your income by 50K.

6:48There would be a compounding skill set that then continues to grow over time. So I really think it's a like, I'm not going to say you have to only do like one index fund or like, I'm not going to be the guy to prescribe certain investment philosophies. I do think if it's taking up like the equivalent of a part-time job of your life time-wise, and you're not managing enough money that it can equate like a part-time job level of like income increase, which probably means millions of dollars in your portfolio, it's probably a poor allocation of time. That's kind of how I think about it. And like I, especially for young people, I think it's really tough to realize how big that time suck is until you're several years into it.

7:29The Long Term Investor Host:You know, I think in financial planning, we're pretty skilled at showing what the future value of a dollar is. but far less skilled. And maybe, you know, even those who are skilled, it would be difficult to convey what the future cost of a missed experience would be. You talk about like money is replaceable, time is not. Can you talk a little bit about like sometimes how these find like the financially sensible choice is still going to carry a lot, a large non-financial cost? And like, what do people get wrong there? Yeah, I mean, I think one of the biggest issues, and again, like I'm speaking as a 29 year old who has experienced my 20s, right?

8:04But like, For a lot of young people, your income is probably lower than it'll ever be. Your uncertainty about the future and just general nervousness about being thrown into the real world for the first time is really high. And I think it's pretty easy to fall in the scarcity mindset of, I don't have that much. I need to protect what I have. And most traditional financial advice is you should put back something around 15 % of your income into savings into investments to compound and like i agree with all that advice to be clear like i max out my 401k i make sure i get the match i do all that but if you're making like your 22 23 year old salary and then you have an opportunity to go on a trip with your friends or even just like go out on a night on the weekend this like window of opportunity of being young person with these fun things that YoungU wants to do is only a few years.

8:59And the cost of having fun, the amount of dollars it takes to have fun at 23 is actually a really small amount. So I'm, and this might be counterintuitive advice, I'm much more in the cap of it's okay to deviate from traditional financial planning advice when you're young as far as money you allocate to retirement. assuming that like one, the money is actually going to experience as you would find fulfilling. And it's not just like binging on DoorDash or whatever. And two, you know, you don't have a ton of debt. And three, that you think you're on a like high slope career path or earnings will increase.

9:36You know, if it's a, if you aren't pursuing a high income life, that's fine. Like there's more to life than just going after money. But if you're in a job where you make 60K now, but there's a path to 150K in like, you know, three, four years, then it's okay to spend a little bit higher percentage of your income. You're making 50K. If you're not, you need to be more thoughtful about that because like the odds of you being able to make up those missed contributions later is lower. So it's, you know, all of this is subjective, but it's like a sliding scale of, at the end of the day, like money serves one purpose and that is to be used on some form of fulfillment either now or in the future.

10:16And you kind of have to ask yourself, like, is that extra$5 ,000 that I would save at 23 going to be more useful when it compounds for 40 years and I can spend it and it's worth$30 ,000 or$40 ,000? Or would I rather spend it now as a 23-year-old? What would 60-year-old me be happier with? Like younger me having spent that money on this thing or keeping it for that thing. Again, there's no it's not black and white, but like I don't think again, when it's young, it's really hard to conceptualize how brief youth is. Therefore, it's tough to like convince yourself, especially if you're frugal minded, which is usually a good thing that it's OK to have fun every once in a while.

10:54The Long Term Investor Host:You know, there's really good research on how what we think our future self will want is typically wrong. which makes this difficult. And not every dollar earned can be saved and not every dollar saved can be invested. And so, yeah, there's not like a black and white option. You're often trying to like minimize regret. And when you save for the future, you're effectively spending on your future self. But you make one of my favorite lines in the book, and I'm gonna like paraphrase here, is that memories compound faster than money. I absolutely love that. I think it really aligns with a lot of what I think philosophically about financial planning, you know, like what to you does that phrase mean?

11:37The Long Term Investor Host:And maybe who should not follow that advice? So it's an idea that I borrowed from Bill Perkins. I don't know if you've read die with zero, but it's like great book. And he uses a term called memory dividends. And, um, the, the whole basis behind this. And I like totally agree with his take on this is that like that, you know, like it's pretty easy to understand how money compounds, you can just open Excel, put in$10 ,000, 9 % growth rate, 40 years, and then I can't do the math in my head on that, but then it's worth a lot more than$10 ,000. It's in the hundreds of thousands of dollars. But if you don't ever spend money on memories, then you'll end up being at that same 65, 70 years old, and you have$5,$10 million in the bank, and you don't have moments of nostalgia to look back on.

12:25And I view like what he calls memory dividends, I think is just like future instances of nostalgia for remembering things that you found very enjoyable in the past. And like by doing interesting, fun stuff with people you care about when you're young, you are giving future you the opportunity to enjoy like reliving those experiences later. And I do think that like the, the kind of meta thing to be optimizing for in life is like how many really, really powerful, meaningful moments of nostalgia can you put at the different periods in your life? And when you have one of those moments, it's worth spending money on.

13:01Right. So the other thing is like, it's those things just cost way less money when you're young, when you don't have kids or you don't own a home, like the older you get, the more expensive it is to like create meaningful things because your lifestyle just costs more. You have more dependents, like your, your taste and like the hotel you want to stay end at like 42 is going to be different than 22, right? So if you need to throw a few hundred bucks at something, like have fun at 22, you should probably do it. Now, the caveat on that is like, you don't want to put yourself in a really tough spot later.

13:33For example, if you're in credit card debt, like ignore all, like everything I'm saying is from the point of like, you're being overly frugal, but you have the ability to spend. If you're in a spot where like you have high interest rate debt, like, no, you shouldn't just be like, you shouldn't max out a credit card to go live, laugh, love in Europe at 25. Like don't do that. Um, so like for the people who shouldn't do this, it's like, if you're not in a spot financially where I think it's okay to save less when you're really young, but you shouldn't bury yourself in more and more debt. That's kind of where I draw the line.

14:06Um, that's, I mean, that, that is actually the, the one exception I would make on that.

14:11The Long Term Investor Host:You know, it's interesting as you were talking and I started searching as you were talking. So, So last year, Nick Majuli had a book called The Wealth Ladder and created like a spending rule around like, hey, like any given time, 0.01 % of your net worth, like you can just spend it. Don't worry about it. And what I started to search for is like, OK, some of these are like there's a bigger spending rule on when you should splurge. And it's kind of, you know, the idea is similar to yours because you can get like memories compound, but you can like financial habits, good financial habits compound, too.

14:41The Long Term Investor Host:and you don't want to create an argument for under saving. And, you know, it's just really tough. I go back to financial planning. You work with a financial advisor and they're going to run like a Monte Carlo for you and figure out what is your probability of running out of money before a certain age. And that whole process is like a balance on a scale of like we're trying to minimize running out of money versus minimize dying with regret. And like where you fall in the middle can be tricky. And I will say that, so I don't work directly with clients. I haven't for a long time. My role is really just to manage the money at the firm, but I still meet with clients and I see people who are such diligent savers over their lifetime where they just, by the time they're allowed to spend the money, they can't.

15:25The Long Term Investor Host:And so I think there's some benefit here just to getting in the habit of spending some of your money, of like living your life a little bit. One group, and I'm so happy that I think you and I align here. One group that I sort of am skeptical of is the fire movement. Yep. Yep. We are very aggressive saving. Yeah. Like talk to me. Why don't I not even set you up? Like talk to me about the fire movement. So you mentioned Nick Majuli. He I quote him at one point in my book because he has a very good I forgot what year the stat came from. But basically he has a stat one of his old blog posts basically saying that like everybody's worried about retirement.

16:03But actually, at least in America, most retirees have so much money in savings that they don't even touch the principal before they die, which is like on one hand good because I like money problems suck. There is no worse situation like feeling like you're short on money. I fully get that. But if you're 70 years old and you're spending like$100 ,000 a year and you have like$8 million in the bank account, it's like compounding faster than that. You're just never going to spend that down. It's like there was a more efficient point of spending earlier. Ramit Sethi talks all the time in his podcast about like you have all these like really neurotic people who made a lot of money in tech or finance or whatever and they're frugal and they just don't know how to spend.

16:45I think the fire movement is at the core of this whole thing where like the entire point of what the fire movement was supposed to be was rooted in good things and that like you should put yourself in a position that you have the freedom to live the life that you want. But there's a more toxic version that's kind of been co-opted over time that's become this vilification of the labor force where you should minimize all worldly materials to the point that you can opt out of the labor force. And it's like, okay, so if you really buy into that, take it to the full extreme, you take whatever job you have.

17:20Let's say you're making$90 ,000 a year. And you basically live in the cheapest apartment that meets your needs. and you eat rice and beans and never hang out with your friends. And the entirety of doing that is just to get you to the point that you can continue to do that without having to have more money coming in. I mean, my take on this is like you probably just really don't like your job, but you do something else for a living. It's like the, I don't know, like because I can go on a whole tangent

17:48The Long Term Investor Host:on like anti-fire movement propaganda. I mean, please do. I'm pretty anti-fire, so you do you. The other issue with this, and it's something that doesn't get thought about much, is like with the way fire usually plays out for people who are like true disciples, they end up hitting it and probably they're like mid to late thirties to early forties. Right. And the issue with that is like, then everybody else in your like age band in life is like peak career working at least 40 hours a week minimum. And it's like, okay, who are you going to hang out with? What's your social life? Two people younger than you that are just figuring stuff out or people like older than you who are retired.

18:21So you are now putting yourself in a spot where you're less relatable to like the friends of your kids. You like your friends from college or early career or high school or whatever. You're making less money, which means that like if the market downturns, that actually totally screws up the graph that you made. Like you're putting your entire livelihood in the hands of market forces while also alienating yourself from everybody else that was previously like around your lifestyle. I don't know. I did a whole spend a year, we can talk about this more in a minute, but backpacking Europe and Latin America for a year in my early 20s.

18:58It was kick-ass. It was awesome. I would come across the occasional late 30s drifter in Argentina. It's just like, dude, this is not. I don't want to end up like, I don't care how free you feel. This is not good. What you get is an extreme example, but it's just like, I think people underrate how good it is to be in a life phase. that's like relatable to other people around your age. If everybody around your age is working and you just feel like you have to get out of the labor force, there's probably not anything wrong with the labor force. There's just something wrong with your relationship to it.

19:30So just like change jobs. Take a sabbatical for a year and then go do something else. But I just, I don't know. People are meant to do stuff. You're not supposed to just subsist.

19:40The Long Term Investor Host:Yeah, I think a life without purpose is harder to find fulfillment and like contentment. And I'm not saying you can't have purpose without a job. You know, a lot of the fire movement feels like people just like pick up odd jobs here and there. They're like, I don't really work. But then they're like an Uber driver because they have to have like some money coming in or, you know, I think in general, I don't think a lot of the audience here are part of the fire movement. But I think, you know, sometimes it comes from a place of like, OK, I don't like my job, but also some people in the healthier frame won't spend.

20:13The Long Term Investor Host:So like less fire movement, but more frugalness to an extreme in part because they worry about like uncertainty and people, you know, depending on when you entered the workforce can really like shape your view around risk and uncertainty. Like, yeah, I came in in 2007. So one could argue like, especially into an industry where, but I mean, I knew lots of people who went into banking and just lost job after job from 07 through 09. You know, me, I was at a financial advisory firm and people needed us more than ever. And I was just like, oh, this must be what a normal bear market is like. And every bear market has felt super boring since, admittedly.

20:49The Long Term Investor Host:But I just think often people face uncertainty and not actual risk. You talk a little bit about this and it's a little pivot off of fire, but like, where is that distinction useful as well as like, where does it break down? Yeah. I mean, I uncertainty and risk is interesting because they feel the exact same like the they're both this you get this feeling of like anxiety because you just don't know what the outcome is going to look like um the the what differentiates them is like what are the actual consequences of the downside case and the example that i give in the book is like i have this chapter where it's like a hypothetical scenario comparing like 25 year old you and 40 year old you and like if the worst case thing happens which could be like losing your job losing a lot of money if you're 25 living with a couple of roommates your burn rate is like probably a few thousand dollars a month, like they're just like your rock bottom really isn't that low, right?

21:41Like people like it, like it will feel bad. It'll suck, but you can find another job. People are willing to bet on the young person if they're high energy. Like it's, you don't have that much money saved up that you're going to burn through. It's like you can just scrape by and figure it out. If you're 40 and you have a mortgage and like your kids in private school, and you have a couple of cars and you quit a like high paying job where you haven't built up a nest egg to go like start a startup or like do something a lot higher risk and it doesn't work. Um, you have like serious problems. Like you, like you're it's, it's, it's very much just related to like, what is your like lifestyle?

22:22What are your lifestyle costs? Um, but the, the reason that I make that differentiation in the book is just like, I think a lot of young people are really risk averse when like the downside case of basically any career decision is actually, at least from a financial standpoint, just not that high. And there's a lot of things that might have lower short term payouts that have really powerful right tails, whether it's joining a startup that ends up doing well or like pursuing an entrepreneurial endeavor where even if you don't make a lot of money, you learn a ton that you can bring that experience with you to the next thing where you're more senior and you do make more money, right?

22:56Where if you hyper fixate on, oh, like, well, if I leave investment banking for something that's like a 70K a year pay cut, that's a massive drop. And like, maybe, but what if it sets you up better 10 years down the road, right? Like it could be worth it versus if you're spending just tens of thousands of dollars a month on your lifestyle, you might physically not be able to afford that jump because if it doesn't work, you have serious problems. Like the numbers don't number. So the, I mean, the thing to think about really it is somewhat i think again so much of this is like life stage related like single in your 20s you has a much different like risk curve than like mid 40s a lot of expenses now and in the future um but the thing to think about is like what is the worst case scenario actually look like for me if i make a given decision and like am i just nervous because i don't know what will happen or am i nervous because if the bad thing happens bad things happened to me.

23:53The Long Term Investor Host:It's something that you face really through any stage of life. I think when you're younger, the stakes seem higher, like because there's infinite futures. If you walk down a path, you're like, well, what if I get stuck down this path and that other path would have been better? And as a result, I will had been farther along with whatever the goal is, career path, like money choice, whatever it is. You kind of talk at one point about the book where like sometimes people feel stuck when there are multiple reasonable choices there and you suggest living life backwards maybe you could walk us through that exercise yeah i mean it's and again i like i have a propensity to like go from like i think introspection is really good i think rumination is self-destructive i'm someone who like can get in my head a lot and like slide from the good one to the bad one um so i guess this is something like i've struggled with and i had to work through myself.

24:45But the, um, like a few years ago, I was like, really, I was like 24. I was basically just trying to figure out what I want to do with my life. What matters? Like didn't love my job. Knew I was going to grad school. Didn't know what I wanted to do after it. And I ended up speaking with this guy, Dr. Jim Jackson. He was a like former Baptist pastor, um, at a small town where my grandparents grew up then at a big church in Houston. Now he's like an executive coach and does a few different business things, but he's great. And he had talked to people like much more senior and important than me about much bigger problems than I was having.