The Art of Manliness - Data-Backed Answers to Personal Finance Controversies

00:00:00.000 Brett McKay here, and welcome to another edition of the Art of Manliness podcast.

00:00:11.140 Dip your toes in the world of personal finance, and you can find plenty of questions that

00:00:14.480 are the subject of endless debate.

00:00:16.280 How much of your income should you save?

00:00:17.920 Is it okay to take on debt?

00:00:19.380 Which is better, renting a home or owning one?

00:00:21.920 When it comes to the stock market, should you buy the dip?

00:00:24.460 On his blog of dollars and data, my guest cuts through the personal finance noise by

00:00:28.600 finding answers based on numbers rather than conjecture, and then converting this research

00:00:32.620 into advice the average person can understand.

00:00:35.000 His name is Nick Majuli, and he's the Chief Operating Officer and Data Scientist at Ritholtz

00:00:39.260 Wealth Management, as well as the author of Just Keep Buying, Proven Ways to Save Money

00:00:43.540 and Build Your Wealth.

00:00:45.260 Today on the show, Nick explains what the data says about how you should approach the questions

00:00:48.660 I've already mentioned.

00:00:49.520 He also shares how to spend your money without feeling guilty by using the 2X rule, the three 0.90

00:00:53.580 criteria you should meet before you consider buying a home, the best way to approach the

00:00:57.200 idea of dollar cost averaging, and more.

00:01:00.220 We end our conversation with the right mindset to adopt in our volatile economy.

00:01:03.780 After the show is over, check out our show notes at awim.is slash finance answers.

00:01:17.580 All right, Nick Majuli, welcome to the show.

00:01:20.780 Thanks for having me on.

00:01:21.540 So you are the Chief Operating Officer of Ritholtz Wealth Management, and you got a new book

00:01:26.900 out called Just Keep Buying, Proven Ways to Save Money and Build Wealth.

00:01:31.040 This is where you just use a lot of data to show people how to manage or think about their

00:01:36.140 money at different parts of their financial life.

00:01:38.820 But you got an interesting background because you didn't start off your career in wealth

00:01:42.180 management.

00:01:42.700 How did you get involved with wealth management and personal finance?

00:01:45.580 Yeah, so I originally started in litigation consulting, which is a little different from management

00:01:50.660 consulting because it's like backward looking and very analytical, while management consulting

00:01:54.460 is very forward looking, trying to improve a business, etc.

00:01:56.860 But basically how I got into wealth management was I was like, hey, I'm going to start blogging.

00:02:02.100 I like personal finance and investing.

00:02:03.500 I'm going to start writing about it in the beginning of 2017.

00:02:06.140 It was like a side hustle type thing.

00:02:07.520 I wasn't really making money on it at the beginning.

00:02:11.100 And I met a lot of people through Twitter, through promoting the blog.

00:02:14.420 And some of those people, I actually went out to a conference in late 2017, met some of

00:02:17.980 these people in real life who actually had a wealth management firm.

00:02:20.360 And that's how they kind of brought in leads was through content marketing.

00:02:23.460 And we hit it off really well.

00:02:24.820 And next thing you know, six months after that, mid-2018, I joined a wealth management

00:02:29.260 firm, which I'm still at today, Ritholt.

00:02:30.900 So it's been a fun journey just doing that, how you can take a side hustle.

00:02:35.380 And now it's kind of my main hustle too.

00:02:37.520 It's that they're both very correlated in that way.

00:02:39.660 So it's been a very fun journey.

00:02:41.780 Well, what's been your approach to financial writing?

00:02:43.920 Because you have a blog.

00:02:44.840 It's called Dollars and Data.

00:02:46.300 So you use a lot of data.

00:02:47.860 So what kind of data are you looking at to help just regular people inform their personal

00:02:51.400 finance decisions?

00:02:53.560 I mean, a lot of the data I'm using is market data.

00:02:56.020 I'm trying to see like, okay, for example, US stock returns or international stock returns

00:03:00.720 and just analyzing it in a lot of different ways.

00:03:03.780 Whether we're doing a timing question, like how often should you be buying?

00:03:07.100 Should you buy the dip?

00:03:07.940 These types of questions that people have.

00:03:10.160 There's a lot of data there.

00:03:11.220 There's also data from the Bureau of Labor Statistics, like on consumer expenditures, how people

00:03:15.640 are spending money, all those types of questions.

00:03:17.540 There's just data out there that you can dig into and just answer questions and see if a

00:03:22.160 lot of the beliefs we have are true or not.

00:03:23.800 And I think in the book and Just Keep Buying, I basically took my greatest hits of stuff I've

00:03:28.180 been writing over the last five years and just put it all into one place and said, hey,

00:03:32.400 here's what people think is true.

00:03:34.160 And here's what the data says.

00:03:35.220 And here's what I found.

00:03:36.140 And I think that's been really helpful just to kind of go through a lot of our core beliefs

00:03:40.020 in personal finance and investing and debunk the ones that I don't think are real.

00:03:44.940 So let's talk about some of these principles and these greatest hits you write about in

00:03:47.840 Just Keep Buying.

00:03:49.080 The first principle you talk about is it's kind of in your face.

00:03:53.420 It's saving is for the poor, investing is for the rich.

00:03:57.180 What do you mean by that?

00:03:58.200 And how are you defining poor and rich?

00:04:00.840 Well, in this case, when I say poor, I mean it on both an absolute level and a relative

00:04:05.280 level.

00:04:05.980 So when I say absolute, like if you're truly just don't have any money, you're below the

00:04:09.840 poverty line.

00:04:11.000 But also for someone who's like, let's say, you know, late teens, early 20s, maybe they're

00:04:15.580 starting to work for the first time.

00:04:17.500 I would consider them poor relative to their future selves, right?

00:04:20.260 Assuming they're going to save and invest diligently, etc.

00:04:23.540 And so when I say poor, I'm saying like the issue, I really realized all this.

00:04:27.300 You know, when I was 23 years old, I spent so much time like, you know, trying to pick my

00:04:30.500 asset allocation, overanalyzing my investments.

00:04:32.940 But at the time, you know, when I was 23, I only had $1,000 to my name.

00:04:36.800 So like, even if I got, you know, a 10% return, that's, you know, what's the math on that?

00:04:40.880 $100 in a year.

00:04:42.600 And yet at the same time, I was going out and, you know, blowing $100 by, you know, going

00:04:47.780 to dinner, going getting drinks, you know, Uber home, all that stuff, you know, and there

00:04:51.280 goes $100 like that.

00:04:52.540 So like my investment return for an entire year, I could have spent in one night easily

00:04:56.040 when I was living in San Francisco at the time.

00:04:57.860 So I think when I say savings for the poor, it's like, what do you need to focus on when

00:05:01.820 you're 23 years old or 22, or just kind of getting into the job market, or you don't

00:05:05.480 have a lot of money, you need to focus on your savings, you need to focus on, you know,

00:05:08.480 earning more incomes, you can actually save money, spending all this time trying to over

00:05:12.080 engineer your investment portfolio is mostly wasted time, you know, for someone, I'm not

00:05:16.000 saying you shouldn't learn about it.

00:05:16.920 I think knowledge is always helpful.

00:05:17.980 But, you know, I know people that spend so much time trying to analyze the markets, this

00:05:21.760 and that.

00:05:22.060 And it's like, it's like, bro, you have like $10,000 to invest, even if you could get a, you

00:05:26.320 know, a 10% alpha, that's $1,000.

00:05:28.360 And how many hours did you spend to get that $1,000, right?

00:05:30.920 You probably would have been better off working at McDonald's and a side job, you know, and

00:05:34.840 when you actually analyze the number of hours people put in for something, like just to 0.88

00:05:38.360 try and get extra return, it's, it's ridiculous.

00:05:40.460 So I think that's where that phrase comes from.

00:05:42.520 Because when you're poor, when you don't have a lot of money, you really need to focus on

00:05:44.960 your savings.

00:05:45.500 And then once you actually build up a nest egg, you have a lot of money or considerable amount

00:05:49.180 of money, then you can start like really focusing on your investment.

00:05:52.520 That's where every little percentage makes a difference.

00:05:54.240 Because like on a, like, let's imagine on $10 million, I imagine a 10 million bucks,

00:05:58.720 a 1% difference, you know, is pretty significant versus, you know, a 1% difference on $1,000

00:06:03.600 is nothing, right?

00:06:04.660 So that's kind of the main takeaway there.

00:06:07.380 Gotcha.

00:06:07.720 And when you say saving, like you need to save your money, you're not saying just put it

00:06:12.540 in a bank account.

00:06:13.340 You're like, you're going to be investing it, but you're just not focused on like allocation

00:06:16.800 and like market, you know, all this weird stuff with you can do with investing.

00:06:21.780 Yeah.

00:06:22.160 Yeah.

00:06:22.300 So I apologize when I say savings for the rich, like you need to save that money.

00:06:25.080 And of course you have to invest it.

00:06:26.300 Like that's, that's the premise of the book is like, you're always investing your money.

00:06:29.400 It's just, you need to focus more on, you know, how much you can actually, you know,

00:06:33.680 save and invest early on before you start over-optimizing every single thing in your

00:06:37.940 investment portfolio.

00:06:38.780 So I'm not saying allocation doesn't matter at all.

00:06:40.540 That would be silly, but it's just like, you don't need to spend all the hours I spend

00:06:43.780 like trying to, you know, supercharge my investments when you don't have a lot of money.

00:06:47.840 Like now that I'm 32, I, you know, it matters a lot more than when I was 23.

00:06:52.120 Right.

00:06:52.420 So that's the kind of the main takeaway.

00:06:54.260 And the easiest way to, you know, I talk about this in the book and the first chapter,

00:06:56.680 I think is one of the most valuable chapters in there is just like, think about how much

00:07:00.140 you can save in the next year.

00:07:01.220 That's some amount, right?

00:07:02.080 Let's say you could save, I don't know, $5,000 in the next year.

00:07:04.660 Okay.

00:07:04.940 Well, how much can your investments earn you in the next year?

00:07:07.260 Right.

00:07:07.360 Let's say you took a, you know, a fair, let's say you're going to get a 5% return.

00:07:11.140 If you had, you know, 10,000 bucks, that's, you know, $500, right?

00:07:14.200 So $5,000 you could save versus your investments earn you 500 bucks.

00:07:18.180 Like which one's bigger?

00:07:19.080 The 5,000 is bigger.

00:07:20.120 So you need to focus on that and you need to keep building that and, and in reinvesting

00:07:24.100 that money until the investments can earn you as much or more than what you could save

00:07:29.220 yourself.

00:07:29.600 Right.

00:07:29.860 And so you'll see by the time you're, you know, 40, 50, your investments, if you do

00:07:34.200 this properly, should be able to earn you more than you could save in a year.

00:07:37.580 And that's how, you know, you've, you've done the game properly.

00:07:39.680 And that's when you start to really, really focus on your investments once you're much

00:07:42.440 older and have a lot more wealth.

00:07:44.280 Yeah.

00:07:44.340 That's that crossover point.

00:07:45.560 I remember when I was in your money or your life, I remember reading that book had a big

00:07:49.180 impact on how I approach finances.

00:07:50.860 And that was that one point is like, if you're the money you make from, I mean, I guess in your

00:07:54.500 money, your life, they focus, they focused on CDs, which you probably shouldn't do anymore

00:07:58.640 these days, but if your money was, if your CDs were earning more than your income, then

00:08:02.580 like you were, you were good.

00:08:04.420 Yeah, exactly.

00:08:05.120 So that's, that's one way you could look at it.

00:08:06.780 I agree.

00:08:07.260 The CDs thing is not really a thing anymore, but yeah, I completely agree.

00:08:10.960 Yeah.

00:08:11.120 CD ladders.

00:08:11.760 I remember I had a CD ladder in high school.

00:08:13.140 I thought it was, I thought it was savvy.

00:08:14.940 So let's talk about how much you should save.

00:08:17.780 Cause I've heard all sorts of numbers.

00:08:19.380 I remember when I was a teenager, I had this adult, this mentor, and I remember we were driving

00:08:25.600 in the car to someplace and he said, Brett, if you do these two things, you're going to be okay.

00:08:30.420 If you set aside 10% of your money for, for giving and then 20% for yourself, save.

00:08:38.200 And like, I listened, I was like, oh yeah, this sounds good.

00:08:40.320 And so I've done that.

00:08:41.780 What does the data actually say?

00:08:43.180 Like, what's the appropriate amount to save?

00:08:46.120 Is it 10%, 20%, 30?

00:08:47.780 What is it?

00:08:48.840 I see in the book, I don't really like giving specific answers to this because the issue is

00:08:54.000 our incomes are a lot more variable today than they were when I think a lot of the savings

00:08:57.960 advice was first created.

00:08:59.460 You have to imagine like, go back to like the 1950s.

00:09:01.920 There's like a one income household, right?

00:09:03.460 It's very stable, pension, a lot more stability.

00:09:06.560 So saving was something that was just like, oh, I'll just save 10% of every paycheck or 20%.

00:09:10.420 So that's why a lot of the savings rules kind of came out that way.

00:09:13.980 But now today we usually have two income earners.

00:09:16.520 We now have side hustles, like income's not far more variable.

00:09:20.160 Like let's say if you were an Uber driver or something,

00:09:22.320 like your income is going to vary every time you go out, right?

00:09:25.080 So because incomes vary so much more today, and there's a lot of data showing this,

00:09:29.040 it's really hard to say like always save the same amount because given, you know,

00:09:33.060 different costs and different income, how can you save the same amount every month?

00:09:36.620 It's just like, it would be very difficult.

00:09:38.080 You have to cut back or you have to do all sorts of stuff.

00:09:39.840 So my philosophy is just save what you can.

00:09:43.060 And so what that means is the real focus, you should really focus on just building your

00:09:46.840 income over time and obviously spending, you know, what you want to live a comfortable

00:09:51.060 lifestyle and then anything beyond that is what you save.

00:09:53.460 Now, of course you're like, well, Nick, I can just keep spending more and more and more.

00:09:56.020 Of course you could do that.

00:09:56.900 But the point isn't to like, you know, lifestyle creep yourself into having no savings.

00:10:02.280 It's just to be like, okay, I need this to like live my life and live comfortably.

00:10:05.640 And then beyond that, you need to build your income.

00:10:08.260 That's like, I think it's the way to like, you can, this is the lowest stress way to save

00:10:12.560 money and also the data supports it because there's no one right, you know, savings role.

00:10:16.760 And the example I give in the book, when I was living in Boston, I had a 40% savings rate

00:10:21.260 after tax savings rate, very high.

00:10:23.100 As soon as I moved to New York, I didn't have any more roommates.

00:10:26.160 So my rent went up.

00:10:27.140 And also I took like a slight pay cut when I first moved here.

00:10:29.680 So like my savings rate went from 40% after tax to like 4% after tax.

00:10:33.960 Now I could have done 20% each year, but I'd have been under saving in Boston.

00:10:37.780 And then I would have been living a really rough lifestyle in New York by trying to save

00:10:42.080 20% when I didn't really have money to, you know?

00:10:44.040 So I think there's times when it's okay to save more than you might necessarily need

00:10:49.000 to save.

00:10:49.420 And there's times when you can, you know, save less because, you know, you're, you're

00:10:52.760 going, you're getting higher costs or something at the time.

00:10:54.880 So those are the things I would, I would try to focus on.

00:10:57.620 Yeah.

00:10:57.660 And you also highlight research that says when you're safe, like if you feel like you

00:11:01.200 have to save 20%, but like, it's not possible, that's what causes a lot of stress in your,

00:11:05.480 from your money.

00:11:07.340 Yeah.

00:11:07.720 And so some people say, well, just take that 20% of your paycheck right away.

00:11:10.580 And okay, you can do that.

00:11:11.860 But that doesn't change the fact that like, what if you don't have money?

00:11:14.600 Are you going to go into credit card debt now to do that?

00:11:16.400 I mean, you see the problem.

00:11:17.360 It doesn't work that way.

00:11:18.320 Savings always have to, I know people say pay yourself first, but realistically, like

00:11:22.300 you have to pay yourself last, like at the end, even though I agree that like pay yourself

00:11:26.160 first is a better idea if you can live off the rest of the budget.

00:11:29.100 But in the event where your costs are too higher, like for example, inflation's going up,

00:11:33.420 you know, used to go and it used to cost X dollars to fill up your tank.

00:11:35.880 Like now it costs X times 10 or times 1.1, 10% higher.

00:11:40.880 So it's like, what are you going to do?

00:11:42.620 Well, I paid myself first and I don't have any extra money to fill up my tank now.

00:11:45.540 Right.

00:11:45.740 You see the problem with that.

00:11:46.760 So that's why you have to save last.

00:11:48.920 Okay.

00:11:49.280 So save what you can.

00:11:50.480 Don't stress out about it.

00:11:51.620 Okay.

00:11:51.820 I think that's, that's probably, that's really useful for a lot of people.

00:11:55.040 So in the personal finance world, you see debate about which is the best way to build

00:11:59.820 wealth.

00:12:00.560 What are the two basic ways to do that?

00:12:02.380 And which do you advocate emphasizing?

00:12:05.060 If you're trying to save more, there's two options you really have.

00:12:07.460 You either cut your spending, right?

00:12:08.900 You spend less money or you raise your income.

00:12:11.980 Now cutting your spending, the issue is just has limits.

00:12:14.220 And I've just, I've looked into the data as I talked about earlier about Bureau of Labor

00:12:17.300 Statistics.

00:12:17.780 There's something called the Consumer Expenditure Survey.

00:12:20.000 And basically if you look at the households in the bottom 20% or the bottom 40%, like there's

00:12:24.760 just not much to cut.

00:12:25.640 I'll say, here's how much they spend on rent.

00:12:27.180 Here's how much they spend on food.

00:12:28.500 Like here's how much they spend on transportation.

00:12:29.840 Like where do you cut?

00:12:30.940 And like, there's not a lot of money they're spending.

00:12:32.480 They're not really spending that much.

00:12:33.540 They're not being extravagant.

00:12:34.660 So it's like, they can't cut.

00:12:36.200 Like once you're at that level, there's just a minimum level of spending you need to have

00:12:39.540 to just survive.

00:12:40.720 So they're really, the only way out, the only way to kind of save more that's sustainable

00:12:44.700 is to raise your income.

00:12:46.320 And that's, that's the data shows that.

00:12:48.580 I mean, the highest, the most positively correlated thing with savings rate is income.

00:12:52.780 Those with higher incomes have higher savings rate.

00:12:55.100 Like it's so clear in the data.

00:12:56.440 It's been clear over time.

00:12:57.620 We have like data going back to like to the 1930s that show that like show like even like

00:13:01.460 people with more wealth tend to have higher savings rate.

00:13:03.580 People with more income tend to have higher savings rate.

00:13:06.200 I know this seems very obvious.

00:13:07.180 Like you're like, oh, obviously if I had way more income, I could save more.

00:13:10.120 But like, then why is there's this huge contingent of people in the personal finance community

00:13:14.740 talking, still talking about cutting spending?

00:13:16.520 Don't get me wrong.

00:13:17.400 You can do that, but it's a short-term solution and it's not, it's not viable long-term.

00:13:21.280 It's just, and it's also far more stressful to always be thinking about every single dollar

00:13:25.000 you're spending and beating yourself up.

00:13:26.540 It's not, it's not a, I think a mentally healthy way to live.

00:13:30.340 Yeah.

00:13:30.380 I think people, the financial advice goes to that because it's easy, right?

00:13:33.700 It's like easier to just be like, well, I'll just cut Netflix.

00:13:36.360 I can do that right away and see a win as opposed to like, well, how can I figure out how to make

00:13:40.100 more money?

00:13:40.920 I agree.

00:13:41.520 It's far harder, but that's, I mean, this is about sustainability, right?

00:13:44.480 Just as like, you know, if you want to build something that's sustainable, it takes a long

00:13:48.140 time, like, you know, I've been blogging for over five years now and I didn't make really

00:13:51.960 any money for the first three years.

00:13:53.340 I had some like Amazon affiliate links.

00:13:54.660 I made like a thousand dollars a year considering I'm spending 10 hours a week, you know, I'm

00:13:57.740 spending 500, I'm spending, I'm making $2 an hour for the first three years.

00:14:01.320 And then I started running ads because then my audience got big enough and now I make more

00:14:04.180 than that.

00:14:04.520 So it's, it's obviously been helpful, but that's an example of like, yeah, it can take a long

00:14:07.820 time, but it can, it can work.

00:14:09.180 And I know there's far better monetization opportunities than starting a blog.

00:14:12.400 I think I did one of the worst ones out there, if I'm being honest.

00:14:14.600 So, you know, just getting a side hustle, things like that.

00:14:17.460 That's how you can grow your income, teach people, tutoring.

00:14:20.460 There's all sorts of different things people can do.

00:14:23.260 And especially with the gig economy where you can make extra money, find a skill that

00:14:26.640 you really, or some expertise you have and sell that.

00:14:29.540 There's a lot of ways to grow your income, but ultimately all that income should be used

00:14:33.080 to buy income producing assets.

00:14:34.240 And those things are going to start paying you.

00:14:35.620 That's like stocks, real estate, you know, index funds, things of that sort that'll pay you

00:14:40.400 over time.

00:14:41.120 That's kind of the main goal I think of, of all of this.

00:14:43.640 All right.

00:14:44.200 So find ways to increase your income because that'll allow you to save more.

00:14:46.820 And because you can save more, you'll eventually get to that crossover point where your money's

00:14:50.660 working for you.

00:14:52.160 Yeah.

00:14:52.580 Oh, it's always working for you from the very beginning.

00:14:54.580 But yeah, at some point it's going to be ideally, you know, in a good year, let's imagine like

00:14:58.760 this, you know, in a good year, your investment portfolio should earn you more than you could

00:15:04.000 save in a year.

00:15:05.060 Right.

00:15:05.220 And you can imagine, let's go back to the $10 million person, right?

00:15:07.840 They have $10 million.

00:15:08.680 A 10% return is a million dollars.

00:15:10.800 Do you know anyone that could save a million dollars after tax in a year?

00:15:13.640 That's very, very difficult.

00:15:15.440 You have to have a very, very high paying job to do that.

00:15:17.800 Right.

00:15:18.100 So, you know, but getting to, you know, getting to 10 million is obviously going to be difficult

00:15:22.080 as well.

00:15:22.560 But you see the problem once you have that wealth or you see the issue, once you have

00:15:25.580 that wealth, it's much easier to build more wealth.

00:15:27.580 So the key is to kind of get there and just build it over time.

00:15:31.000 Yeah.

00:15:31.140 This reminds me, we've had Ramit Setti on the podcast and he has this rubric I really

00:15:34.340 like.

00:15:34.560 It's like, instead of thinking about $5 questions, like think about $5,000 questions, right?

00:15:40.020 Like figure out how you can like make $5,000 more by me, you know, taking a side hustle

00:15:44.260 or me asking for a raise instead of thinking about, well, if I cut $5 a day for my spending,

00:15:48.620 that's not going to give you very much.

00:15:51.380 Yeah, completely.

00:15:52.120 Ryan's thinking about like the big things.

00:15:53.640 And a lot of this is surprising too.

00:15:55.400 You know, when I first started the blog, I wasn't thinking about any $10,000 questions

00:15:58.600 whatsoever.

00:15:59.220 You know, I was just writing and just doing it because I love it.

00:16:01.140 So I think a lot of times you have to follow your interests because like I can tell you

00:16:03.900 to pay, go do this thing because it's going to make you more money.

00:16:06.020 And like, unless you love it or you love the money so much, it's going to be really difficult

00:16:09.700 to keep doing that thing, you know?

00:16:11.700 So that's the, that's what I would say is like, find something that really follow your

00:16:14.780 interests.

00:16:15.280 And if you can, you know, find a way to kind of monetize that in some way where that's

00:16:19.440 teaching people or selling a product or something like that, that's the way to go.

00:16:23.920 And I think it's with the internet economy, it's so much easier today.

00:16:26.920 Like even places like Gumroad, you can sell digital products to anybody, right?

00:16:30.220 And obviously distribution is the hard part.

00:16:31.720 How do you find people?

00:16:33.040 But, you know, that's why I use Twitter, Reddit, things like that, that can help, you

00:16:35.760 know, find people, you know, that are like-minded that might like your products.

00:16:39.220 Well, let's go back to this idea of, you know, a lot of personal finance advice out there

00:16:42.700 is about basically making you feel bad about spending money, right?

00:16:46.180 Everyone's heard like the avocado toast meme that's been going on for a couple of years

00:16:49.840 now.

00:16:50.360 But you have a system that allows you to spend money on what you want, like what will give

00:16:54.320 you fulfillment and meaning while at the same time saving.

00:16:57.560 So what is it?

00:16:58.340 It's called the 2X rule.

00:16:59.340 Can you walk us through the 2X rule?

00:17:01.640 Yeah.

00:17:01.840 So anytime you want to splurge on something, the 2X rule is basically just like, let's

00:17:05.820 say you want to buy a nice pair of dress shoes, right?

00:17:07.960 It's $400 pair of dress shoes.

00:17:09.720 If you want, if you consider that a splurge, you would save $400 for the dress shoes and

00:17:13.660 then you'd save another $400.

00:17:15.380 So 800 in total, 2X.

00:17:16.680 And you take that other $400 and you can invest it in income producing assets, you know, such

00:17:21.380 as, you know, S&P 500 or international stocks or, you know, a REIT ETF, you know, real estate

00:17:26.620 investment trust, things like that, that'll, that'll earn you income.

00:17:29.020 So if you ever feel that guilt of splurging, this is a way to kind of offset that.

00:17:33.280 And you don't have to just like invest.

00:17:34.720 You can also donate that money too, if you don't want to invest.

00:17:37.000 So there's a lot of different ways you can, you can do this.

00:17:39.520 It's just a simple rule to kind of get over spending guilt.

00:17:42.080 Cause a lot of times we, we guilt ourselves into spending on ourselves, which is kind 0.68

00:17:45.500 of silly.

00:17:46.480 I mean, that's why we work for this money anyways, right? 0.97

00:17:48.380 We work so hard for it.

00:17:49.180 Why not, you know, spend it on ourselves at times, but because we guilt ourselves so much,

00:17:53.740 I think that's a simple way to kind of get over that.

00:17:55.860 But in addition, I think just people always talk about, oh, I, you know, I want to maximize

00:17:59.020 my happiness.

00:17:59.860 I don't think that's actually, that's a decent rule, but I think a better rule is maximizing

00:18:03.860 fulfillment.

00:18:04.840 And I think the difference, a very simple example can show you the difference.

00:18:08.380 I would say if you're like into like rock climbing or mountain climbing, things like that,

00:18:11.580 like climbing Mount Everest is probably a very fulfilling experience.

00:18:15.120 I would say it's probably not a happy experience.

00:18:17.280 Like based on my understanding of those people that go up there and the oxygen deprivation,

00:18:20.780 how, you know, physically difficult it is to do that.

00:18:23.400 Like I would not say you're in, you're in a happy state while you're there, but I would

00:18:27.020 say it's a fulfilling thing to go through that journey.

00:18:29.380 So I think that's the thing to think about is like, what's going to fulfill me in the long

00:18:32.660 run and then spend money on those categories versus like, oh, well, this is just going

00:18:37.420 to bring me happiness, right?

00:18:38.360 I think they can be correlated, but they're not always the same.

00:18:40.960 And I think just to figure those out, that's kind of the hard part.

00:18:44.160 Yeah.

00:18:44.220 I think there's another way you can find, you know, okay, we've kind of been knocking,

00:18:47.580 looking ways to like cut spending, but I think that's a, that's a useful rubric, you

00:18:51.160 know, just focus spending your money on the things that actually bring you fulfillment

00:18:53.940 and then cut spending on the stuff that like, man, this just might give me a little happiness

00:18:58.540 and fun momentarily, but it really doesn't do much for me in the longterm.

00:19:02.740 So like for me, I don't really spend a lot of money on clothes.

00:19:06.200 That's like, I'm not a clothes hound.

00:19:07.540 I'm not much of a foodie, so I like, I'm not big into like restaurants, but like what

00:19:11.120 I love to spend my money on is a workout equipment and books.

00:19:14.940 And I'm okay with that, but I'm for another person might be, well, they love buying clothes

00:19:19.060 and it gives them a lot of fulfillment.

00:19:20.100 Well, okay, do that.

00:19:21.700 Instead of spending money on, I don't know, workout equipment, if that doesn't bring you

00:19:24.800 joy.

00:19:25.860 Yeah.

00:19:25.980 I think that's another thing too, is we, we try and say, well, the data shows this,

00:19:29.160 like you, I mean, the data is helpful for a lot of things, but there are times when it's

00:19:32.400 just not going to be accurate.

00:19:33.340 For example, there's, you probably heard this before.

00:19:35.420 It's like, oh, people are much happier when they spend money on experiences over things.

00:19:39.320 I generally agree.

00:19:40.480 That's true.

00:19:40.800 But what happens if that's only true for like extroverts, let's say, and if extroverts

00:19:44.640 are like, you know, they estimate, you know, extroverts are somewhere between 50 and

00:19:47.340 70% of the population.

00:19:48.420 So if that's true and you ask most people, what are they going to like spending on?

00:19:52.500 And they're going to say extroverts are probably going to say experiences, but what about the

00:19:55.600 introverts that are 30%?

00:19:56.800 They may not like experience as much.

00:19:58.320 They may like things like books or something else, right?

00:20:00.640 I'm just coming up with categories, but you see the point, like data is good.

00:20:03.980 It's useful for like figuring something out and exploring, but you really, at the end

00:20:07.720 of the day, have to define what experiences you want or what things you care about.

00:20:11.380 And if that's like fancy watches or fancy cars or whatever, that's fine.

00:20:14.360 I don't think you should let anyone guilt you for that.

00:20:15.780 If you truly enjoy them, I think it's just about figuring that out.

00:20:19.060 That's the hard part, right?

00:20:19.800 Figuring out what you want, know thyself, right?

00:20:21.460 It is like a, this goes back to like the Greek ages, right?

00:20:24.420 Yeah.

00:20:24.580 So like figure out, it's important to line up your spending with your psychological profile.

00:20:28.540 I think that was another point you make in that chapter too.

00:20:31.240 Yeah.

00:20:31.480 Yeah.

00:20:31.680 Of course.

00:20:32.120 I mean, that's what I'm saying.

00:20:32.740 Like there's certain people that, you know, this, and we can kind of get into this later,

00:20:36.160 but just like, even with debt, like there's certain people that are so debt averse, they

00:20:38.960 don't want any debt, like not even mortgage debt.

00:20:40.620 So they'd rather rent forever.

00:20:41.940 And if that's who you are, you just hate the feeling of having debt.

00:20:45.060 Then yeah, you got to make sure that your stuff matches or your spending and your, your financial

00:20:49.520 decisions match your personality.

00:20:51.460 We're going to take a quick break for your words from our sponsors.

00:20:56.720 And now back to the show.

00:20:58.400 So something I think a lot of younger people are worried about today, you know, they're

00:21:02.620 in their twenties or their thirties and they think, man, I've got to save so much for retirement.

00:21:08.460 You know, people are living longer these days.

00:21:10.760 I might have 30 or 40 years where I'm not working at all.

00:21:14.260 You know, healthcare costs are going up.

00:21:16.260 And so I'm afraid I'm not going to have any enough money when I'm old, but you point out

00:21:20.700 data that says, yeah, you're, you're probably going to be okay.

00:21:23.960 You probably don't have to worry so much about it.

00:21:25.560 So what do the numbers say there?

00:21:28.060 Yeah.

00:21:28.420 So the first thing I just want to dispel this myth, everyone thinks that social security

00:21:31.800 is going to run out of money.

00:21:32.700 Like, Oh, we're just going to get zero.

00:21:33.920 And I think there's a lot of people, especially in millennials who believe that we're not

00:21:37.580 going to get any money out of social security.

00:21:39.140 And if you actually look at the reports, like social security is definitely not going to

00:21:42.840 run out of money.

00:21:43.540 It's, I mean, even if the fund, the trust runs out, like future workers paying into the

00:21:48.340 system, we'll be able to pay all benefits to at least 70%.

00:21:51.040 So I think benefits will be reduced.

00:21:52.400 They'll probably raise the retirement age.

00:21:53.620 It's the only way to kind of make the system work, but to think you're going to get zero,

00:21:57.100 I think it's a little, it's a little extreme.

00:21:59.400 I just can't imagine that unless like the U S collapses, but in that case, like, you

00:22:02.880 know, who cares about your investment portfolio?

00:22:04.380 Honestly, you're going to need to like figure out a far more, you know, far bigger problems

00:22:08.720 and worry about your retirement.

00:22:09.640 Right.

00:22:10.000 So I think that's the first thing, just social security, some social security will be there.

00:22:14.200 So you really just need to save in excess of whatever your social security income is

00:22:17.920 going to be.

00:22:18.420 And right now, like for social security is about $1,500 a month.

00:22:21.680 So it's not a ton of money.

00:22:22.760 It's 18 grand a year, but still $1,500 a month, you know, that's not nothing.

00:22:26.540 So let's assume that's indexed to inflation.

00:22:28.520 Assume we get that.

00:22:29.360 So then however much you're spending a month, you just need to save for that excess there.

00:22:32.880 So that's one thing.

00:22:34.020 And if you look at the data, there's just so much data that like retirees don't spend 0.99

00:22:37.420 down their wealth.

00:22:38.580 And so they end up dying with inheritances.

00:22:40.560 So like the average inheritance of like someone in their sixties who dies is like 300,000 and

00:22:44.660 some of their seventies, it's higher.

00:22:46.080 And someone in their eighties, it's higher.

00:22:47.240 It just keeps going up generally over time.

00:22:50.040 And that was kind of shocking for me.

00:22:52.200 Cause I'm like, Oh, you think people are spending down their assets, right?

00:22:54.480 They're going to run out of money.

00:22:55.180 It's like, it doesn't always happen.

00:22:57.120 Of course it happens to some people, but most retirees end up dying with some wealth.

00:23:00.460 Right.

00:23:01.180 And so I think that's something to kind of keep in mind there is like people like, Oh,

00:23:04.100 I'm going to probably run out of money.

00:23:05.020 It's like, you probably won't.

00:23:06.480 Cause you're not going to, you're not, you won't even let yourself.

00:23:08.200 That's the thing too.

00:23:09.180 Psychologically.

00:23:09.560 A lot of people will just end up not selling down their principal.

00:23:12.160 Only one in seven retirees sells down their principal in a given year, which is kind of

00:23:16.360 shocking.

00:23:16.760 Most of them just live off their investment.

00:23:18.000 So if you have a hundred thousand dollar portfolio and it's, let's say it's getting you 10% a year,

00:23:22.600 most will just take that 10,000 plus their social security income and they're good.

00:23:26.180 And they won't even touch the a hundred thousand and it'll just stay there at a hundred every

00:23:29.360 single year, basically.

00:23:31.180 So that's kind of the way to think about it, but that's kind of, you know, what I've seen

00:23:34.940 in the data.

00:23:35.400 And that's why I don't think people need to worry as much about how much they're saving

00:23:38.620 for retirement.

00:23:39.720 Gotcha.

00:23:40.040 Well, let's talk about debt.

00:23:41.120 So you mentioned, you know, some people, they're just very debt averse, but what does the data

00:23:45.060 say is, is all debt bad?

00:23:46.820 Like, and if it's not like, when is debt okay?

00:23:49.420 Well, I mean, debt isn't good or bad.

00:23:50.780 It's how you use it.

00:23:51.500 Right.

00:23:51.800 And it's, there are certain circumstances.

00:23:53.760 I mean, I think the main principle I have around debt is like the people that are best

00:23:57.660 served to use debt are people who don't need it, which is kind of shocking.

00:24:00.540 Like if you think of, I can give some extreme examples, but I think they illustrate the point.

00:24:04.080 You would say like, you know, Elon Musk, you know, at one point was the richest man in

00:24:06.960 the world.

00:24:07.140 Maybe he still is now.

00:24:07.860 I don't know.

00:24:08.220 I don't check it every day or whatever, but when he's the richest man in the world, why

00:24:11.720 would Elon Musk have debt?

00:24:12.900 It's like, that seems so crazy as all this money, why would he need to borrow?

00:24:15.620 Well, he just basically, he didn't want to sell his Tesla shares.

00:24:18.640 So he basically used them as collateral and then borrowed from a bank.

00:24:21.620 So in case something happened and he couldn't make a payment on his debt, he could just give

00:24:25.400 them some of his Tesla shares that he had as collateral.

00:24:27.560 So that's an example where he probably got a very, very low interest rate from a bank

00:24:31.160 and he was able to, you know, as a result of that, not sell his Tesla shares, which

00:24:35.280 are likely appreciating faster than his interest rate.

00:24:38.140 And so because of all that type of stuff, he didn't need debt, but he took it and used

00:24:41.640 it properly.

00:24:42.180 And I think that's the same thing.

00:24:43.260 Like there's a great book out there called the value of debt and building wealth.

00:24:46.500 And that really kind of changed my worldview on looking at debt.

00:24:49.840 Now, of course, there are certain types of debt, which aren't favorable, generally credit

00:24:53.460 card debt.

00:24:54.140 I don't agree people should have it, but there are cases where if you're in a jam and you

00:24:58.080 really don't have a lot of cash that maybe you need to use that to like get out of it.

00:25:01.600 But as long as you know, you're, you're going to try and find ways to, you know, increase

00:25:05.060 your income or maybe cut spending to get out of that hole.

00:25:09.020 That's important.

00:25:09.940 You know, I don't want people to be spending frivolously, but like there are cases where to be

00:25:14.100 made to use credit card debt.

00:25:15.180 And I give an example in the book of these people who are called borrower savers, for

00:25:19.200 example, they might have a $500 credit card bill and a thousand dollars on their bank account.

00:25:23.920 You're saying, well, that makes no sense.

00:25:24.980 Nick, why wouldn't they just pay off the $500 and just have $500 in cash right in their

00:25:29.860 bank and have no credit card debt?

00:25:31.820 Well, the issue is if they do that, they may not have enough liquidity, you know, to take

00:25:36.040 care of an expense that may be $800, right?

00:25:38.140 That they need to pay right now, you know, and they can't pay with the credit card, right?

00:25:41.320 So that's an example where someone may have just extra liquidity and they need the liquidity.

00:25:44.540 And so they're using a credit card to pay for that liquidity, so to speak.

00:25:48.340 So overall, I would say, you know, the times you use debt is when you can earn a higher return

00:25:52.140 than what you're borrowing at.

00:25:53.360 That's obvious in cases like, you know, if you can business or maybe student loans, depending

00:25:57.760 on what you're going into.

00:25:58.800 I think that really matters in terms of how it's going to affect your lifetime earnings.

00:26:01.800 But in addition to that, like mortgage debt, I think is, is most people are okay with it.

00:26:06.760 It doesn't affect them psychologically of all the types of debt out there.

00:26:09.280 That debt really has the lowest psychological is a stress profile.

00:26:13.780 So if you have mortgage debt, most people don't really worry about our stay up and I don't,

00:26:17.040 my gosh, my mortgage, they don't really worry about that.

00:26:18.800 There are some that would, but most people don't.

00:26:20.640 So that's just something to keep in mind.

00:26:22.440 What kind of debt keeps people up at night?

00:26:24.660 Do we have any research on that?

00:26:25.640 It's usually financial debt.

00:26:27.000 So credit card debt, debt that's owed to like friends and family, things like that,

00:26:31.100 like personal debt that you take from people, you know, because it's harming your social

00:26:35.160 capital.

00:26:35.680 And I think people really are very cognizant of their, you know, their place in the social

00:26:39.300 and, you know, the social hierarchy and all that.

00:26:41.240 So that's the type of debt you want to try to avoid that really does eat people up.

00:26:44.980 Generally debt of like mortgage doesn't.

00:26:47.440 Yeah.

00:26:47.640 So it's any type of non-mortgage debt.

00:26:49.360 It can affect people.

00:26:50.560 I don't know how student loans, I actually don't know the data on student loans in particular,

00:26:53.960 but I just know like financial debt, particularly credit card debt.

00:26:57.000 It does stress people out because the rates are so high, right?

00:26:59.760 Yeah.

00:27:00.020 And imagine if you take a loan from the mob, that'll also keep you up at night.

00:27:03.940 Yeah, yeah, yeah, exactly.

00:27:05.680 Loan sharks will get you for sure.

00:27:07.360 Yeah, right.

00:27:07.880 Well, as you mentioned mortgage, let's talk about the, you know, one of the biggest financial

00:27:10.580 decisions that a lot of people make and that's whether to buy a home or not.

00:27:13.600 And this is another topic in the personal finance world where the debate gets heated.

00:27:18.100 You see different opinions.

00:27:20.140 So, I mean, what is your take?

00:27:21.260 What does the data say about buying or renting?

00:27:24.320 Yeah.

00:27:24.440 So, I think if this is, I, the, the two topics I dislike writing the most about are this topic

00:27:30.140 here about real estate buying versus renting and taxes.

00:27:33.140 And the reason why is because I'm trying to give general advice for something that's so

00:27:38.340 individual and like specific to a specific region or area or person, right?

00:27:42.700 Like in the case of taxes, if you're single or married, that changes things, right?

00:27:45.440 How many kids you have?

00:27:46.420 Do you have kids?

00:27:47.000 That changes things.

00:27:47.820 All sorts of, you know, what, where's your income coming from?

00:27:50.340 That changes how you, what's the optimal decision profile, right?

00:27:52.960 The same thing's true with buying versus renting.

00:27:55.020 So, I do have some general principles I follow, but I think overall, I think it's more of a

00:28:00.240 personal decision and less of a financial decision.

00:28:02.980 And so, I know we want to talk about all the financial levers and all that, but I think

00:28:06.840 mostly it's more of a personal decision.

00:28:09.120 It's like, are you ready to do this?

00:28:10.400 And I give, I give three basic like criteria I think you need to hit in order for you to consider

00:28:15.300 owning versus renting.

00:28:16.340 And the first one is I think you need to be there for at least 10 years.

00:28:19.920 And the reason I say that is transaction costs tend to be, you know, on average around 6%,

00:28:24.600 including everything, you know, if you have to pay realtor closing costs, any of that type

00:28:28.920 of stuff, when you add all that up, it's usually about 6% of the price of the home.

00:28:33.500 And, you know, the real return on housing since like, I don't know, the early 1900s is something

00:28:38.560 like 0.6% a year.

00:28:39.680 It's been much higher than that recently, but just through, for most of history, you

00:28:44.260 know, homes have gone up by, you know, 0.6% a year.

00:28:47.160 So, 10 times 0.6 is 6%.

00:28:49.080 That's how you negate the transaction costs.

00:28:50.880 So, if you're there for 10 years, the transaction costs should be negated out on average.

00:28:55.260 The second thing is you need to have a stable personal or professional life.

00:28:59.560 It's really tough to like buy a home as a single person and then, oh, you're going to

00:29:03.380 get married and have kids and the home isn't big enough for that and then you need to sell

00:29:06.360 and pay the transaction costs again, right?

00:29:07.840 So, ideally, you want to not pay transaction costs.

00:29:10.500 So, that's another thing.

00:29:11.520 So, the personal life or professional life, right?

00:29:13.680 You don't want to go and, hey, I just got this really risky job or maybe I'm at a startup

00:29:18.000 and, you know, my incomes are going to be very variable or something.

00:29:21.120 You don't want to take on a bunch of debt where you have to make payments every month

00:29:24.260 and you have no idea what your pay is going to be that month.

00:29:26.300 So, I think that can also be risky.

00:29:28.300 And lastly, you have to be able to afford it.

00:29:30.420 And what does afford it mean?

00:29:31.820 We can go back and forth on that.

00:29:33.060 But I think, you know, what they consider a qualified mortgage is a debt-to-income ratio

00:29:36.960 that's less than 43%.

00:29:38.620 So, if your monthly debt, let's say you make income of $5,000 a month and your payment,

00:29:44.020 that's gross income, and your payment, your mortgage payment's $2,000 a month, that's 40%,

00:29:48.640 right?

00:29:48.880 $2,000 over $5,000 is 40%.

00:29:50.460 So, as long as it's below 43, it's qualified.

00:29:52.460 So, those are the three things.

00:29:53.860 You know, be there 10 years, stable, professional, and personal life, and, you know, you can afford

00:29:58.340 it, which is, that's obviously harder to solve for, but there are ways you can look at that.

00:30:02.840 And I think if those things are there, then you should own over renting.

00:30:05.980 Otherwise, you know, I would say, hey, maybe consider renting a little longer.

00:30:10.340 Right.

00:30:10.820 And I don't know if, tell me about this approach that I've had towards owning a home.

00:30:14.360 I've, so I know a lot of people think about buying a home as an investment.

00:30:17.240 It's like, well, this is going to be a store of wealth.

00:30:19.280 I've never really thought of my home as like part of my store of wealth.

00:30:22.520 Like, I bought a home, I treat it like, you know, I'm buying like a car or something.

00:30:27.360 You know, just, this is, it gives me utility, but there's also like all these, this intangible

00:30:30.880 value that I get from owning a house.

00:30:33.160 It's like where I can build a home and make memories for my kids and I can remodel it and

00:30:37.320 do stuff that I want to it.

00:30:39.340 I'm never really thinking about, well, you know, when I'm 20 years from now, I'm going

00:30:42.820 to be able to sell this thing and pocket a bunch of change.

00:30:44.640 Is, is that a good way to think about it?

00:30:46.720 Should I be thinking of my home as a, as an asset?

00:30:49.140 I mean, I agree with you that like a lot of the home part is the societal thing.

00:30:53.560 It's the social thing.

00:30:54.500 It's the personal values and things you care about, which you mentioned here.

00:30:57.920 I would not necessarily consider a home and an investment in a traditional way because

00:31:02.160 it's really like, let's say your home goes up, you know, twice, you know, two X in value,

00:31:05.600 right?

00:31:06.080 The question is, can you make anything off?

00:31:08.700 Can you eat that equity?

00:31:09.660 And unless you sell that home and go to a much cheaper area, because think about if your

00:31:13.900 home went up two X, probably every other home in your neighborhood went up two X.

00:31:16.740 I'm assuming you want to live there for some reason, right?

00:31:18.580 You, you like where you live.

00:31:19.560 Then it's like the only way you can cash out that is if you sell in one place and move

00:31:23.600 to a much cheaper area.

00:31:24.560 That's the only way that it becomes an investment.

00:31:26.760 You kind of can cash out some of that equity, but most people generally live in the same

00:31:30.920 areas.

00:31:31.600 They don't move too far away.

00:31:32.640 So they're never going to be able to see that.

00:31:34.400 So I don't like thinking about it as an investment.

00:31:36.560 It can be an investment in certain circumstances, but usually it'll just kind of keep pace with

00:31:40.900 inflation.

00:31:41.440 So over time it should keep pace with inflation, which means, you know, it's going to be either

00:31:45.260 passed down to someone else and they're going to really enjoy the investment.

00:31:49.340 So it's not really an investment for you, but it could be investment for, you know, the

00:31:52.480 next generation or your children.

00:31:53.940 If, you know, when, if you eventually pass, you know, you pass on the home and then they

00:31:57.300 either keep it or sell it or whatever they do with it.

00:31:59.100 So that's where the investment part I think comes in.

00:32:01.880 Gotcha.

00:32:02.320 Well, let's move to, we've talked about saving.

00:32:04.860 We've talked about debt.

00:32:05.700 We've talked about, you know, more, there's some big personal finance decisions that people

00:32:09.300 have to make, but let's talk about, okay, we're saving our money and we need to

00:32:13.400 invest it.

00:32:14.560 You're saying when you're first starting to save slash invest, like you shouldn't spend

00:32:18.420 a lot of time and bandwidth thinking about, well, it's my allocation.

00:32:22.740 He's like, you know, I'm going to maximize this.

00:32:24.320 So what do you recommend for someone who's just starting out?

00:32:26.680 So either it's a guy listening, they're in their twenties, they're just starting to work.

00:32:30.600 They've opened up a 401k.

00:32:32.360 How should they invest their money?

00:32:33.420 So they're not having to actively tinker with it all the time.

00:32:36.640 Yeah.

00:32:37.000 I think they should just be broadly diversified into income producing assets.

00:32:40.620 And so what does that mean in income producing assets is a very, you know, vague term, but

00:32:45.120 includes things like stocks, bonds, real estate, and there's different ways you can do real

00:32:50.320 estate, whether you're owning an investment property or you're buying real estate through,

00:32:54.160 like, as I mentioned earlier, real estate investment trust, which you can get through

00:32:57.440 an ETF index fund type thing.

00:32:59.920 I can't mention specific tickers for compliance reasons, but if you search, you know, S&P 500

00:33:04.320 index fund, you know, you can find a very cheap option that will give you broad access

00:33:08.780 to diversified access to the U.S. stock market, right?

00:33:12.340 So I think that's the simplest way you buy those things.

00:33:15.660 You buy them over time.

00:33:16.740 You don't worry about it.

00:33:17.900 You focus, spend more of your time focusing on your career and saving more money.

00:33:21.060 And then as you start to acquire more and more wealth, then you can kind of fine tune

00:33:24.240 and say, Hey, do I really need a, then you can start saying, Hey, do I need something

00:33:27.040 like art?

00:33:27.800 Do I want to have something like crypto?

00:33:29.440 Do I want to have something, you know, and all you can start adding these other things,

00:33:33.180 which may not be income producing, but I think the bulk of your assets should be

00:33:36.040 income producing.

00:33:36.920 You know, I'm not against crypto.

00:33:38.500 I'm not against our, I own both of those types, those asset classes, but they represent

00:33:41.900 a minority of my portfolio.

00:33:43.380 So I'd have a, about 85 to 90% of my assets are what I would consider income producing

00:33:49.780 in my portfolio.

00:33:50.980 And the other 10% are things like that aren't income producing, which is crypto art.

00:33:55.460 And I think a handful, I would also, I have some private investments in companies, but

00:33:58.860 I consider those because they're like, I'm like seed angel round.

00:34:02.080 I don't even consider those as income producing.

00:34:04.120 So I consider them as like kind of like a lottery ticket type thing.

00:34:06.560 So that's also in the non-income producing asset, but could become income producing one

00:34:10.720 day.

00:34:11.080 So someone who's just starting, yeah, go just, you can just do some research, find like,

00:34:15.460 you know, broadly diversified index funds.

00:34:19.080 There's not, there's not a better, I mean, it's, they're so cheap and they just, they work

00:34:22.860 really well and they need to build wealth over time.

00:34:25.400 Yeah.

00:34:25.500 I think most of the major, um, investment firms like they have, they, they offer some

00:34:29.420 sort of index fund that you can get.

00:34:31.440 So focus on that.

00:34:32.500 And then once you are getting that going, then you can do, you know, use a small percentage

00:34:36.600 of your savings for that fun stuff, cryptocurrency art, et cetera.

00:34:41.300 Yeah, of course.

00:34:42.020 Yeah.

00:34:42.580 Well, let's talk about the title of the book.

00:34:43.760 It's called just keep buying.

00:34:45.080 And this is the idea that you should just constantly keep buying and investing in the

00:34:50.180 market, you know, putting your money in income producing assets.

00:34:53.000 When I first saw the idea of just keep buying, I instantly thought of dollar cost averaging

00:34:57.420 for those who aren't familiar with dollar cost averaging.

00:35:00.460 Can you explain like sort of the common conception of dollar cost averaging?

00:35:04.360 And then I guess maybe how is just keep buying similar and different from that common conception?

00:35:10.800 Yeah.

00:35:10.940 So just keep buying is basically dollar cost averaging.

00:35:14.100 It just has the psychological motivation built in.

00:35:16.640 And it's also, it's, to be honest, it's catchier.

00:35:18.440 I mean, it's dollar cost averaging.

00:35:19.820 I mean, it's fine.

00:35:20.800 It's been there for a while, but just keep buying is just a catchier phrase.

00:35:23.380 I think it would be more eye popping.

00:35:25.240 But I think one of the issues with the term dollar cost averaging is there's actually two

00:35:29.800 definitions for it.

00:35:30.920 So my understanding is the original definition, which I think got popularized by Ben Graham,

00:35:35.640 you know, Ben Graham, who did securities analysis, was like the mentor to Warren Buffett.

00:35:39.440 He said like dollar cost averaging is when you're just buying over time, right?

00:35:42.920 Like, so if you have a 401k, every two weeks you get paid, you're buying, you know, you're

00:35:47.260 taking some money, you're buying into the market or whatever you're buying, whatever

00:35:49.700 basket of assets you're buying into, you're buying them over time, right?

00:35:52.620 That's the original definition of dollar cost averaging.

00:35:55.840 At some point, the second definition came up, which is imagine, you know, you sold a business

00:36:02.280 or you got an inheritance.

00:36:03.320 You have a big chunk of change.

00:36:04.560 Let's say you have $100,000 to invest.

00:36:06.700 Instead of putting that all into the market now, which people call a lump sum investment,

00:36:09.900 they say, oh, you should dollar cost average that investment and slowly average into the

00:36:14.960 market over time.

00:36:16.180 I do not like that definition because think about it.

00:36:18.380 It actually means the opposite of the first definition.

00:36:21.380 The first definition of dollar cost averaging means investing as soon as you can with whatever

00:36:25.040 money you have, right?

00:36:26.020 Investing now, right?

00:36:27.480 The second definition, which is like averaging in slowly into the market with like a large amount

00:36:32.060 of money.

00:36:32.660 That's the exact opposite of the other definition.

00:36:35.180 So I think this is so confusing because you have the same phrase being used for two different

00:36:40.880 definitions.

00:36:41.340 And I've been on the war path to try and fix this for a long time, trying to tell people

00:36:45.180 to stop using the second definition because that's kind of a more, you know, that's a newer

00:36:49.620 definition basically.

00:36:50.980 But it's not going to change.

00:36:52.280 This will continue to cause confusion.

00:36:53.900 So basically, long story short, the good dollar cost averaging, just keep buying.

00:36:58.540 That is the good version of it.

00:37:00.840 The bad version is the one that slowly averages into the market over time because it's suboptimal.

00:37:05.580 I show in the book why investing now is far better than averaging in this, I call it.

00:37:09.380 So that's what I would say in terms of understanding dollar cost averaging, the confusion that you'll

00:37:14.980 hear when you read, you know, you might read a post that says lump sum versus dollar cost

00:37:18.360 averaging.

00:37:19.000 That is the second definition.

00:37:20.540 That's not the definition that I'm using in the, which is, I think, true to history and

00:37:24.260 true to how it was invented or popularized at least.

00:37:27.260 Well, can you kind of walk us through?

00:37:28.240 I mean, I know you can get in the weeds with this stuff because I thought that was interesting

00:37:30.980 because I've, when I've read about dollar cost averaging, I've always seen that second

00:37:35.280 definitions, right?

00:37:36.100 Well, if you have, let's say you have a hundred thousand dollars to invest, you inherited

00:37:39.220 a hundred thousand dollars.

00:37:40.420 Well, instead of investing it all at once, you want to break that up throughout the year

00:37:44.280 because, you know, one month the market might be up and then another month market might

00:37:47.960 be down.

00:37:48.600 The market might be up the next month.

00:37:50.020 And so overall, like you, you get your money in at different times.

00:37:53.260 And so it will, you know, even out, average out, right?

00:37:56.200 But with lump sum investing, it's like, well, if you invest your money when the market's

00:37:59.600 high, then it crashes.

00:38:00.880 Well, you just, you just lost all that.

00:38:03.400 That's, I mean, I think that's what people think with dollar cost averaging.

00:38:05.940 So why is the, that second approach, dollar cost averaging suboptimal from the lump sum

00:38:11.860 investing?

00:38:12.980 So it's suboptimal because the market tends to go up over time.

00:38:16.720 And so I actually show in the book, I go through every, I go through a bunch of different

00:38:20.480 asset classes.

00:38:21.040 I don't just use us stocks.

00:38:22.120 I do us stocks.

00:38:23.040 I do gold, I do international stocks, I do Bitcoin.

00:38:25.680 And I show that if you were to average in, which is the second definition for dollar cost

00:38:30.080 averaging, that underperforms a, you know, buying now, which is putting all the money

00:38:34.460 in now lump sum, right?

00:38:35.920 80% of the time and the average underperformance for every asset class, it varies, but for the

00:38:40.540 US stocks, it's about 5%.

00:38:41.720 So let's say, Brett, you and I got paid $100,000 at the beginning of this year and I put all the

00:38:47.200 money in in January and you slowly waited in.

00:38:49.900 Now in 2022, you would have been better off because putting in January, the market obviously

00:38:54.000 crashed.

00:38:54.580 And so you would have been better off in that year.

00:38:56.860 But now what if we'd done that in 2021 or 2020 or 2019 or 2018?

00:39:01.460 And every single year before that, basically anyone who put all the money at the beginning

00:39:05.640 of the year would have won out.

00:39:06.960 And so if you actually run that throughout history, run this experiment across every year

00:39:10.280 in history, 80% of the time you're better off by investing now.

00:39:13.980 And just think about the premise of investing.

00:39:15.740 The reason you invest is because you want these assets to appreciate and go up, right?

00:39:20.480 It's kind of counterintuitive.

00:39:21.940 It seems so silly to me to think like, oh, I'm investing because I want this money to

00:39:26.140 grow, but I'm also slowly investing because I think it's going to crash.

00:39:30.340 Like it doesn't really make sense.

00:39:31.880 Like the premise of investing is you think the market's going to go up and it generally

00:39:34.320 does go up, right?

00:39:35.300 And so because of that increase, you're generally better off putting the money in now.

00:39:39.860 Now, of course, in the small cases, in a handful of cases, you know, 20% of the time

00:39:44.000 when the market declines, you know, right after you put it in, that's unfortunate.

00:39:48.340 But there's also, you know, a psychological component here, which is like the only time

00:39:52.580 when averaging in or this second form of dollar cost averaging outperforms lump sum is when

00:39:58.740 the market is falling.

00:40:00.000 And that's the exact time when you're least enthusiastic to put money to work, right?

00:40:04.180 So imagine, you know, let's go back to February 2020, market's starting to crash.

00:40:08.140 Let's say you had $100,000 to invest.

00:40:10.500 I would have lump summed it.

00:40:11.580 But someone else would have said, hey, I'm going to start putting it in.

00:40:14.560 They start putting it in February 2020.

00:40:16.680 March 2020 comes around.

00:40:18.060 The market's even lower.

00:40:19.020 They may get scared and say, you know what?

00:40:20.220 I'm going to wait until the dust settles, right?

00:40:22.400 Next thing you know, the market within six months, the market's back at all time highs.

00:40:25.760 So it's one of those things where it's very easy to say this in a vacuum.

00:40:29.440 But the only time that averaging in beats like a lump sum investment is when the market's

00:40:34.300 crashing.

00:40:34.720 And that's the time when you're not going to want to do it.

00:40:36.420 I mean, as simple as that.

00:40:38.000 So I just don't, I don't think the data is there.

00:40:40.080 And I don't think the psychological motivation is there either.

00:40:42.160 So I say just lump sum and, and, you know, let the chips fall where they may.

00:40:46.300 And I think some people might think, well, I'm going to lump sum, but I'm going to wait

00:40:48.480 until like the market goes down.

00:40:50.020 I'm going to buy the dip.

00:40:51.620 Yes. 0.87

00:40:52.080 Why is buying the dip a fool's game? 0.90

00:40:54.300 With most income producing assets, it's a fool's game because they tend to, it's the 0.88

00:40:59.160 same argument I just made.

00:41:00.040 They tend to go up over time.

00:41:01.060 Um, so the issue is when you wait to buy a dip, you're like, Hey, I'm going to wait

00:41:05.080 for a big dip.

00:41:06.040 By the time that dip comes, the dip value is usually higher than where you could have originally

00:41:10.860 purchased.

00:41:11.460 And I'll give you an example.

00:41:12.280 I remember I wrote, I actually wrote the blog post called just keep buying back in April,

00:41:16.860 2017, five years later, the book came out.

00:41:18.820 That was coincidental by chance.

00:41:21.200 Anyways, I wrote this post and people were like, Oh, the markets are too expensive.

00:41:24.520 Back in April, you know, 2017, people were saying markets are too expensive.

00:41:27.660 I'm waiting until there's a crash.

00:41:29.360 Let's say they waited and waited and waited.

00:41:32.060 The big crash they got was in March, 2020.

00:41:34.500 That would have happened.

00:41:35.960 But even if they had bought on the exact bottom, which of course is impossible to time, but

00:41:39.940 let's say they actually, they bought on the exact day of the bottom.

00:41:42.600 They still would have bought prices that were 7% higher than if they had just bought back

00:41:47.660 in April, 2017.

00:41:49.140 So it's a perfect example showing you like, you're, you think you're a genius.

00:41:53.100 Like, Oh, I just bought this dip.

00:41:54.220 I got the big discount.

00:41:54.980 But like, you don't see all the mistakes you made by not buying previously.

00:41:59.100 And so that's a very extreme example.

00:42:01.380 I literally took the bottom, which is like impossible all the time, but let's say you

00:42:04.460 did time it.

00:42:05.160 And I took this period, you know, three or four years prior.

00:42:08.240 And I show like, even if you had done that, you've been better off just buying over time.

00:42:11.540 Right.

00:42:11.840 So that's why buying the dips, uh, fool's errand.

00:42:14.360 Cause most of the time the dip is still higher than where you could have bought originally.

00:42:17.460 Most of the time, of course there are exceptions to this rule.

00:42:19.620 Like great depression is a great example, but it just, those big dips are rare.

00:42:24.380 They don't happen that often.

00:42:25.500 And they're so rare because of that.

00:42:26.780 They're not that profitable.

00:42:27.720 So you have to get lucky.

00:42:28.800 Really.

00:42:29.020 Only time by the dip works is when you get really lucky.

00:42:31.220 That's it.

00:42:31.800 You know?

00:42:32.500 Well, I mean, here's the question I have.

00:42:33.980 Maybe this would be a great one to end on.

00:42:35.640 So, I mean, right now I'm feeling confused about like what to do, like, you know, what's

00:42:40.480 going on with the economy.

00:42:41.340 Like there's inflation and then like the market's volatile.

00:42:43.780 And then like, you know, people might be like, should I buy a house now?

00:42:47.000 Because, you know, prices are expensive, but I've heard they're crashing.

00:42:50.360 And so you hear all these contradictory advice on how to manage your money in this situation.

00:42:55.720 I mean, how are you thinking about it?

00:42:57.040 Like for someone who's like confused, they're reading all this stuff.

00:42:59.540 Like, man, what do I, should I spend my money now?

00:43:01.800 Because inflation might decrease the value of the money in my bank account.

00:43:05.520 Any advice for people who are feeling confused about what to do with their money in our current

00:43:08.660 situation?

00:43:10.100 I mean, there's this great phrase that goes, you know, history doesn't always repeat, but

00:43:13.480 it often rhymes.

00:43:14.840 I think by, you know, understanding that this kind of stuff has happened before.

00:43:18.800 I mean, I think the 70s is a great example of this.

00:43:20.860 It's not exactly the same, but it's very similar.

00:43:23.280 And just understanding that like we've kind of gone through these types of periods before

00:43:27.160 and we're going to get through it and things will return to some normal, maybe not

00:43:31.620 exactly 2% inflation in what we had in the 2010s, but maybe, you know, a lower inflation

00:43:36.480 level, far more stability, things like that.

00:43:39.200 I don't know when that will happen.

00:43:40.360 That may take a decade.

00:43:41.320 It may take multiple decades, but these type of things will happen and they'll pass.

00:43:44.780 So I think the thing to realize is just like the more history, you know, the more comfortable

00:43:48.540 you feel with what happens in the present, because these types of things, as I said, you

00:43:52.200 know, they, you know, they don't repeat, but they rhyme in a lot of ways.

00:43:55.640 And so you'll see people tend to, you know, human behavior hasn't changed that much, even

00:43:58.940 though, you know, all the inputs are changing, human behavior is pretty stable.

00:44:01.820 So how people react to things has been stable over time.

00:44:04.540 So I would say, you know, keep doing what you're doing, obviously, assuming, you know,

00:44:07.760 you're saving money, you're investing all that type of stuff and stay the course, right?

00:44:11.020 That's the most important thing.

00:44:12.080 You don't want to start panicking, making a bunch of changes here and, you know, cause

00:44:15.340 yourself to go off course.

00:44:16.340 That's what's most important.

00:44:17.260 And then if you're not where you want to be, find ways to say, okay, what can I do over

00:44:21.160 the next year, three years, five years, 10 years to kind of start moving in that

00:44:24.480 direction, right?

00:44:25.160 And thinking about planning that out, you know, and that's, it's not easy to do.

00:44:28.360 Like I don't say to perfectly plan your life.

00:44:30.300 It's very typical to plan your life.

00:44:32.120 Just, you know, do what you can and see what happens.

00:44:34.940 Fantastic.

00:44:35.240 Well, Nick, this has been a great conversation.

00:44:36.620 Where can people go to learn more about the book and your work?

00:44:39.300 Yes.

00:44:39.520 You can find my book.

00:44:40.240 Just keep buying at amazon.com.

00:44:41.800 My website is of dollarsanddata.com.

00:44:44.140 And also if you want to DM me on Twitter, my handle is at dollarsanddata, all lowercase.

00:44:49.220 And on Instagram, it's at Nick Majuli.

00:44:50.920 I try to answer every DM I get.

00:44:52.680 So feel free to send one if you have any questions or anything like that.

00:44:55.420 Thank you.

00:44:56.000 All right.

00:44:56.520 Well, Nick Majuli, thanks for your time.

00:44:57.500 It's been a pleasure.

00:44:58.360 Appreciate it, Brett.

00:44:58.840 Thanks.

00:44:59.100 My guest here is Nick Majuli.

00:45:01.400 He's the author of the book, Just Keep Buying.

00:45:03.320 It's available on amazon.com and bookstores everywhere.

00:45:05.580 You can find more information about his work at his website of dollarsanddata.com.

00:45:09.400 Also check out our show notes at aom.is slash finance answers.

00:45:12.460 We find links to resources.

00:45:13.620 We delve deeper into this topic.

00:45:14.740 Well, that wraps up another edition of the AOM podcast.

00:45:24.620 Make sure to check out our website at artofmanliness.com where you find our podcast archives, as well

00:45:28.380 as thousands of articles written over the years about pretty much anything you think

00:45:31.160 of.

00:45:31.720 And if you'd like to enjoy ad-free episodes of the AOM podcast, you can do so on Stitcher

00:45:34.660 Premium.

00:45:34.940 Head over to stitcherpremium.com, sign up, use code MANLY as a checkout for a free month

00:45:38.820 trial.

00:45:39.480 Once you're signed up, download the Stitcher app on Android iOS, and you can start enjoying

00:45:42.660 ad-free episodes of the AOM podcast.

00:45:44.800 And if you haven't done so already, I'd appreciate if you take one minute to give us a review

00:45:47.120 on Apple Podcasts or Spotify.

00:45:48.420 It helps out a lot.

00:45:49.240 And if you've done that already, thank you.

00:45:50.800 Please consider sharing the show with a friend or family member who would think we get something

00:45:53.700 out of it.

00:45:54.160 As always, thank you for the continued support.

00:45:56.160 Until next time, this is Brett McKay.

00:45:57.540 Remind you on a listening podcast, but put what you've heard into action.

The Art of Manliness - September 21, 2022

Data-Backed Answers to Personal Finance Controversies

Episode Stats

Summary

Transcript