Building Wealth: World-Class Principles with Nick Maggiulli

00:00:00.000 | What I think is the biggest law in personal finance is that you can...

00:00:03.360 | That cutting spending is a reliable path to building wealth.

00:00:06.560 | And I just don't think the data suggests that at all.

00:00:09.520 | Like, yes, you can cut spending.

00:00:11.200 | It's like a short-term workaround, but it doesn't build wealth over the long run.

00:00:15.280 | I mean, just consider this. Very simple.

00:00:16.960 | Like, if you look at the data,

00:00:18.400 | one of the most positively correlated things with savings rate is your income,

00:00:23.200 | like your absolute level of income.

00:00:24.640 | Like people with... And you're gonna say, "Well, Nick, this is so obvious."

00:00:27.040 | Well, it's so obvious, but yet people are still pushing this cutting spending argument.

00:00:31.760 | It's like people with higher incomes generally save more money.

00:00:34.720 | That is just across the board.

00:00:35.920 | The higher rate, they're even saving a higher percentage of their income.

00:00:38.880 | And the reason is simple.

00:00:39.840 | Like incomes go up, but your spending doesn't move with it.

00:00:42.960 | It's like law of the stomach.

00:00:44.000 | If I increase your income 10x, are you gonna spend 10 times more on food?

00:00:47.040 | Probably not, right?

00:00:48.080 | Are you gonna spend 10 times more on housing?

00:00:50.080 | Maybe, but probably not.

00:00:51.120 | Maybe you'll spend 8 times more on housing.

00:00:52.480 | I don't know.

00:00:52.880 | But you see people generally earn more and more money.

00:00:55.440 | They don't spend more and more.

00:00:56.800 | And you're like, "But Nick, I know someone that had...

00:00:59.440 | I know this rich person.

00:01:00.400 | I know this person has high income.

00:01:01.360 | They spend a lot."

00:01:01.920 | Yes, you know these people.

00:01:03.040 | You know a handful.

00:01:03.760 | You can think of anecdotes.

00:01:04.720 | I know people like that too.

00:01:06.160 | But the data suggests if you're looking across aggregated data sets across most people

00:01:10.080 | that that is just not true.

00:01:11.840 | Hello, and welcome to another episode of All The Hacks.

00:01:20.000 | A show about upgrading your life, money, and travel.

00:01:22.720 | I'm Chris Hutchins, and I'm excited you're here today.

00:01:25.440 | With all that's happening in the markets right now,

00:01:27.760 | it had me thinking a bit about my guest from episode 6, Morgan Housel,

00:01:31.440 | who talks about how volatility in the stock market

00:01:34.400 | should be viewed more as a fee for admission than necessarily a fine.

00:01:38.320 | I think that's a really helpful perspective, especially given what's going on.

00:01:41.680 | It's currently mid-May 2022.

00:01:44.000 | We're getting awfully close to bear market.

00:01:46.480 | So today, I want to bring on Nick Maggiuli,

00:01:49.360 | who shares a similar sentiment to Morgan and has written about it on multiple occasions.

00:01:53.760 | He's the COO at Ritholtz Wealth Management,

00:01:56.080 | but he's also a writer, investor, and data scientist who regularly uses data

00:02:01.520 | to produce insights and great content about investing and personal finance

00:02:05.920 | on his blog of Dollars & Data.

00:02:08.160 | And he recently released his first book,

00:02:10.160 | Just Keep Buying, Proven Ways to Save Money and Build Your Wealth.

00:02:14.000 | He's covered a lot on his blog and in his book,

00:02:16.800 | but I'm really excited to dig into his focus on income producing assets,

00:02:21.200 | why you might not want to max out your 401(k), investing during a downturn,

00:02:25.600 | getting comfortable with spending more, and why you'll probably never feel rich.

00:02:29.600 | But I want to start with volatility.

00:02:31.440 | So let's jump in.

00:02:32.640 | Nick, thank you for being here.

00:02:34.000 | Thanks for having me on, Chris. Appreciate it.

00:02:36.400 | So you talk about volatility in the market being the price for admission

00:02:39.760 | for people interested in buying stocks.

00:02:41.680 | How do you think people should be thinking about this?

00:02:44.000 | I agree completely.

00:02:45.840 | It is like a fee for admission, except the fee isn't paid.

00:02:48.960 | You don't actually have to necessarily pay it.

00:02:50.640 | If you hold for a long enough time in a diverse set of income-producing assets,

00:02:54.640 | you never have to physically pay it.

00:02:56.160 | You pay it with your emotional costs of holding through all that stuff.

00:02:59.440 | And so it's more of a...

00:03:00.400 | I'd say it's more of a mental fee than it is an actual fee like a financial transaction fee.

00:03:05.760 | So keeping that in mind is what's important.

00:03:08.000 | I think the thing for me that just allows me to stay calm when markets are crashing,

00:03:12.480 | and especially like...

00:03:13.360 | I've just seen this happen so often.

00:03:15.040 | Actually, tomorrow, I'm writing a blog post about this.

00:03:16.880 | It's just like...

00:03:17.600 | I've been investing for 10 years and on average,

00:03:19.920 | the market declines by a little over 10% every other year.

00:03:23.200 | 30% every 4 to 5 years and 50% once a generation.

00:03:28.000 | So let's say every 20 to 25 years.

00:03:30.160 | We did have two 50% declines in the 2000s.

00:03:33.120 | There was the dot-com followed by the Great Recession,

00:03:35.760 | but the last 50% decline before that was '74.

00:03:38.720 | So this is all on average.

00:03:40.160 | But if it's happening every other year, then you shouldn't be panicking over this

00:03:43.760 | because these types of things just happen.

00:03:45.040 | There's going to be different catalysts, different reasons that cause them.

00:03:48.000 | But that's why I can be like, "Hey, this stuff happens."

00:03:50.960 | It's just like the nature of markets and it's going to keep happening that way.

00:03:55.040 | And what do you say to someone who's like, "Gosh, it feels like it could get even worse.

00:03:58.240 | Maybe I should get out before it bottoms."

00:04:00.400 | Let's say you do it.

00:04:01.120 | Let's say you do get out before it bottoms.

00:04:02.800 | Like, "Wow. Okay. I got out. Maybe I saved...

00:04:04.880 | Maybe it goes down another 10%, right?"

00:04:07.040 | But how do you know when the bottom's in?

00:04:08.480 | How do you know when to get back in?

00:04:09.840 | That's the problem.

00:04:10.640 | It's like you have psychological hell on the exit,

00:04:13.600 | and you have psychological hell on the re-entry.

00:04:15.520 | So, it's not even about trying to time it.

00:04:18.000 | That's why it's very difficult to do.

00:04:20.160 | But even if you got lucky on one side of the trade,

00:04:22.720 | you may get unlucky on the other side of the trade,

00:04:24.640 | and you end up not making anything in the long run.

00:04:26.720 | Imagine you sold in early March 2020.

00:04:29.440 | Looking back now, that looks like a good idea.

00:04:31.760 | But when did you get back in?

00:04:33.120 | Within 6 months, we were at all-time highs.

00:04:34.800 | Did you get back in before you passed your old price?

00:04:37.360 | Probably not, right?

00:04:39.280 | And that's the thing.

00:04:40.000 | Because it would happen so quickly,

00:04:41.680 | it's really hard to predict that stuff.

00:04:43.760 | So, I don't recommend those types of all-or-nothing type of moves.

00:04:47.040 | If you are getting worried,

00:04:48.240 | I say make minor, very, very minor tweaks.

00:04:50.880 | Just enough to get you to sleep at night,

00:04:52.400 | but not so much that you jeopardize your financial future.

00:04:54.720 | So, that's my hack there.

00:04:56.160 | If you're going to sin, sin a little.

00:04:58.240 | Don't sin a lot.

00:04:58.960 | That's where people make big mistakes

00:05:00.320 | when they start moving everything too much

00:05:01.920 | based on short-term changes in information.

00:05:04.240 | And what would be a minor tweak?

00:05:06.560 | Let's say I do like a 60/40.

00:05:08.400 | I bought every month in my 401(k)

00:05:10.160 | and putting 60% into stocks, 40% into bonds.

00:05:12.720 | A minor tweak would be like,

00:05:13.680 | "Okay, I'm going to flip that.

00:05:15.680 | I'm going to put 60% into bonds, 40% into stocks."

00:05:18.800 | That's my new...

00:05:19.360 | So, it's a little change.

00:05:21.280 | Obviously, it's a small change in money.

00:05:22.720 | You're still investing in stocks,

00:05:24.160 | but you're doing it at a slower rate

00:05:25.280 | and you're putting more into bonds on the predictive front.

00:05:27.520 | Or just even having a rebalance, rebalancing back.

00:05:30.400 | If stocks have fallen a lot and bonds haven't,

00:05:32.320 | rebalancing back, that can also do things.

00:05:34.160 | There's a lot of different ways of doing this.

00:05:36.160 | And there's no right answer, right?

00:05:37.840 | Every person is going to feel differently.

00:05:39.200 | Someone's like, "I'm not going to feel safe if the market drops another...

00:05:42.000 | If I lose another dollar in the market."

00:05:43.440 | Well, it's like...

00:05:44.160 | And you shouldn't have had that money invested.

00:05:45.760 | The truth is, now you know your actual risk tolerance.

00:05:48.160 | You shouldn't have had that money invested in the first place.

00:05:50.080 | But hey, you're here now.

00:05:51.280 | And if that's true, then yeah,

00:05:52.400 | you probably do need to get out completely

00:05:54.320 | because you didn't realize your risk tolerance.

00:05:56.320 | You should have had a very different portfolio before this happened.

00:05:58.960 | I think a lot of people think, "Okay.

00:06:00.240 | Well, the stock market goes up always.

00:06:02.080 | So, there's not really that much risk."

00:06:04.000 | But you say, "Sometimes the biggest risk you can take

00:06:07.360 | is not taking risk."

00:06:08.560 | Can you talk a little bit more?

00:06:09.600 | Yeah. It's like there's these...

00:06:11.680 | I guess you can look at it as 2 types of risk.

00:06:13.680 | There's slow risk and fast risk.

00:06:15.520 | Now, I would define as fast risk as something like the stock market crashes.

00:06:19.440 | It happens very quickly.

00:06:20.480 | It's COVID-19, the world shutting down, all that stuff.

00:06:23.680 | Those are all types of fast risk that happen very quickly, right?

00:06:26.560 | Slow risk is something that accumulates over a long time.

00:06:29.040 | So, I think the analogy I like to use is with drugs, right?

00:06:32.720 | So, someone doing heroin, they're taking on fast risk.

00:06:35.760 | They're probably going to overdose relatively quickly.

00:06:37.440 | They're not going to be doing heroin for 20 years.

00:06:39.200 | And then they get, I don't know, heroin cancer.

00:06:42.080 | I know that's not an equivalent, right?

00:06:43.520 | There's no cancer you can get from heroin.

00:06:44.960 | But they're going to get some sort of cancer then die.

00:06:46.880 | But smoking is slow risk, right?

00:06:48.720 | That's someone who...

00:06:49.520 | You smoke a cigarette, nothing's going to happen from that, right?

00:06:51.680 | You do it over 20, 30 years though,

00:06:53.360 | you can see the incidence of lung cancer is highly correlated with smoking,

00:06:57.280 | especially after a 20-year period, right?

00:06:59.280 | So, that's slow risk versus fast risk.

00:07:01.520 | So, holding cash is slow risk.

00:07:03.600 | You're sitting there and just holding that cash.

00:07:05.280 | And that's just going to be dwindled away by inflation.

00:07:07.360 | And so, the question is, which one's better?

00:07:10.560 | And there's no right answer,

00:07:12.080 | but you have to figure out whichever risk you want to take.

00:07:13.840 | So, "Oh, I'm going to sit this one out and sit through cash."

00:07:16.960 | Not only is your cash being inflated away,

00:07:18.800 | but if the market does happen to move up...

00:07:20.720 | Like, for example, I had people in 2017 telling me that, "Oh, markets are overvalued."

00:07:25.520 | If you've been sitting in cash since then, you're down...

00:07:27.840 | You lost out on 100% gain, basically.

00:07:30.880 | Even with the current decline, maybe 80%, 90% gain, right?

00:07:33.360 | So, it's like, what risk do you want to take?

00:07:35.840 | And where do you want to take it?

00:07:37.360 | That's the things you need to think about.

00:07:38.880 | So, there's nothing wrong with sitting in cash.

00:07:40.720 | But as long as you know, "Hey, I'm going to lose purchasing power over time by doing this."

00:07:44.720 | As long as you've accepted that, let's say, 2% to 4%.

00:07:47.760 | This last year, inflation has been 8%.

00:07:50.160 | But that's generally not what happens over long periods of time.

00:07:52.800 | Let's just say 4% a year.

00:07:54.160 | You're willing to accept that haircut on your money, then that's fine.

00:07:57.200 | But there's not going to be any fluctuation in the short term.

00:08:00.240 | Very little fluctuation.

00:08:01.200 | But that's what you have to deal with.

00:08:02.960 | One thing you mentioned in there, which I just want you to drill down a little bit more,

00:08:06.320 | is about trying to use that cash to time the market.

00:08:10.320 | I think I always thought, "Okay, let's leave some cash on the sidelines,

00:08:14.240 | so that when the market's down..."

00:08:15.680 | Which, of course, is very hard to predict.

00:08:17.840 | But we're in a situation like that now, you can put it to work.

00:08:21.200 | But given how long it might take for that to happen,

00:08:24.240 | it sounds like it's not actually, from the data, the best decision.

00:08:27.920 | No, it's definitely not.

00:08:29.520 | I mean, 80% of the time, you're going to underperform if you follow a strategy like this.

00:08:34.480 | There are cases where it does outperform.

00:08:36.400 | So the time when it's best to hold cash is right before a big dip.

00:08:39.680 | And then you have to time it pretty well to buy into that dip.

00:08:43.520 | But the problem is dips are rare.

00:08:46.000 | And big dips are especially rare.

00:08:47.680 | If I had to go back and said, "How many 50% drawdowns have we had?"

00:08:50.480 | Or even let's just say 33% drawdowns, like what we had in COVID.

00:08:53.520 | It was 2020.

00:08:54.320 | The one before that was '08.

00:08:55.520 | The one before that was 2000.

00:08:57.360 | I think the only one before that, maybe '87, we got to down 33 with everything.

00:09:01.760 | I don't know if we did.

00:09:02.800 | The time before that was '74.

00:09:04.240 | So they're very rare.

00:09:05.040 | And we keep going back through time.

00:09:06.400 | It's not a history lesson.

00:09:07.440 | But you get my point.

00:09:08.240 | Because they're so rare, the strategy doesn't work.

00:09:10.720 | Because you're sitting there in cash, hoping for this dip that never usually comes.

00:09:14.080 | And so then you've just lost out on market gains that you could have had, basically.

00:09:17.760 | That's the whole issue with trying to time.

00:09:19.440 | And I think what you said was, if you were sitting around in 2017,

00:09:23.520 | thinking things are overvalued, and you waited,

00:09:27.280 | even if you timed the dip, you wouldn't come out ahead.

00:09:29.520 | Is that right?

00:09:30.320 | Even if you started at the beginning of 2017.

00:09:32.720 | And let's say you bought, like you held cash the whole time.

00:09:35.440 | And you bought at the exact bottom on March 23, 2020.

00:09:39.040 | That was the most recent bottom, at least.

00:09:41.040 | Even if you perfectly timed that, you still would have bought at prices 7% higher

00:09:45.440 | than what you could have gotten early 2017.

00:09:47.600 | Of course, if you had done that, that's still an incredible trade.

00:09:50.160 | It's insane that you could do that.

00:09:51.360 | But the fact that you were going to A, know the bottom, time it.

00:09:54.160 | I'm giving you so many benefits of the doubt.

00:09:57.120 | It doesn't really work that way.

00:09:59.120 | So yeah, I don't recommend trying to time the market.

00:10:02.160 | It's tough.

00:10:03.040 | It's just too tough.

00:10:03.920 | I mean, even if you...

00:10:05.040 | I've shown some evidence that if you can do it even somewhat okay,

00:10:08.160 | you might be able to make some money on it.

00:10:09.840 | But it's really tough.

00:10:10.880 | And most people can't do it over the long run.

00:10:12.560 | You just end up losing out.

00:10:14.320 | What do you say about now?

00:10:15.440 | Now, we're not trying to time the market, but we are in a down market.

00:10:19.760 | I don't think...

00:10:20.400 | Depending on what day this airs, maybe we hit bear market.

00:10:22.560 | Maybe we recover.

00:10:23.440 | And a lot of this is not relevant, which I guess we are all hoping for.

00:10:26.400 | But when the market is down, when you're already in the down market,

00:10:30.160 | is there something to do differently?

00:10:31.440 | If you have a way of getting more cash, of course.

00:10:35.520 | I think the difference between...

00:10:36.800 | I'm not against buying the dip.

00:10:38.160 | I'm against holding cash and waiting to buy the dip.

00:10:40.880 | They're very different things.

00:10:41.760 | Because conditional on you being in a dip, let's say you just sold...

00:10:44.240 | I don't know.

00:10:45.360 | You sold a business or you got an inheritance.

00:10:47.600 | And by chance, you happen to get a big cash infusion when the market's down.

00:10:51.520 | That is one of the best times to buy.

00:10:53.440 | Because generally, if the market does recover as we expect it to over some period of time,

00:10:57.920 | you're looking at higher expected returns.

00:10:59.600 | And the math on this...

00:11:00.400 | I cover this in chapter 17 of the book.

00:11:02.880 | The math on this is very simple.

00:11:04.240 | So, let's just use the COVID example.

00:11:06.080 | So, for every percentage decline, you need a larger percentage gain to get back to even.

00:11:11.040 | This is just a mathematics.

00:11:12.720 | So, let's say we're at 100 and the price goes down 33%.

00:11:16.480 | So, something's at 100, it goes to 66.

00:11:18.880 | To get from 66 back to 100, you have to go up 50%.

00:11:21.760 | 66 has to go up by 33 more roughly, which is a 50% gain.

00:11:26.480 | So, X% drop requires a larger gain to get back to even.

00:11:29.920 | So, if you had bought on March 23, 2020, all we need to do is figure out like, "Okay.

00:11:35.040 | How long do you think it's going to take for the market to recover?"

00:11:37.680 | You have some estimates, some time estimate.

00:11:39.840 | And then based on that, we can back out your expected return.

00:11:42.400 | So, even if you thought it was going to take 5 years for the market to recover,

00:11:45.440 | you're looking at a 50% upside over 5 years.

00:11:48.800 | That's roughly 10% a year.

00:11:50.480 | It's actually less.

00:11:51.040 | The compounding, when you actually do the compounding math, it's less.

00:11:53.360 | It's like 8.5% a year.

00:11:54.640 | But let's just make it linear to make it easy for us mentally.

00:11:57.600 | You're looking at 10% a year.

00:11:58.720 | That's a pretty good return if it took 5 years.

00:12:00.880 | Even if it took 2 years, you're looking at what?

00:12:03.120 | 50 divided by 2, that's 25% a year returns.

00:12:06.080 | You're like, "Who wouldn't want that?"

00:12:07.360 | So, if you think the COVID is going to recover in 2 to 3 years,

00:12:09.760 | you're looking at some pretty good returns if you buy.

00:12:11.600 | What actually happened?

00:12:13.040 | The market was back at all-time highs within 6 months.

00:12:15.280 | You had something like a 106% annualized return,

00:12:18.000 | which is like one of the greatest of all time.

00:12:19.520 | Now, I'm not saying that that's going to happen here.

00:12:22.080 | I don't know.

00:12:22.880 | But that's the thinking you need to get into.

00:12:25.440 | So, "Oh, we're 20% off the high, right?"

00:12:28.160 | To get back to even, let's say it's whatever, like 25%, right?

00:12:31.840 | If 100 went to 80, you'd have to go up by 20, which is 25% of 80.

00:12:35.280 | So, you made a 25% gain.

00:12:36.800 | Okay.

00:12:37.360 | If you think it's going to take 2 years to get back to our old high,

00:12:39.920 | let's say it takes 2 years, that's 12.5% roughly.

00:12:42.960 | You know, doing the linear math there.

00:12:44.240 | Do you not want 12.5% right now?

00:12:45.840 | That's a pretty good return, right?

00:12:47.120 | All else equal.

00:12:47.920 | But maybe it doesn't take 2 years.

00:12:48.960 | Maybe it takes 5 years to get back to high.

00:12:50.560 | Then you can see why it's not as good of a deal.

00:12:52.960 | If you were to divide 25 by 5, that's only a 5% return, which isn't as great.

00:12:57.520 | In the book, you said there's only 2 reasons to...

00:12:59.840 | Or there are 2 good reasons to take on debt.

00:13:02.240 | One of them was when your expected return is higher than the cost.

00:13:04.960 | Does that mean that it could be a good idea right now to borrow,

00:13:10.000 | to invest when the market's down?

00:13:11.760 | Is there a risk there that's beyond the expected return that people should be thinking about?

00:13:16.800 | Yes.

00:13:18.080 | I would not recommend that under most of almost all circumstances.

00:13:22.400 | I think technically, yes, the expected return could be higher.

00:13:26.240 | The problem is we don't know the future.

00:13:27.840 | We could be at the beginning of a 5-year bear market.

00:13:30.400 | And so borrowing money to then invest is a very risky proposition

00:13:34.960 | unless you could easily pay off that debt.

00:13:36.960 | Unless you're like, "You know what?

00:13:38.080 | I'm going to take this risk.

00:13:39.200 | I'm going to lever.

00:13:39.920 | And even if it goes south, I can easily pay it off."

00:13:42.160 | You borrow like 2% of your net worth.

00:13:45.360 | It's not some really small amount.

00:13:46.880 | You could try that.

00:13:47.760 | I don't think it's worth the hassle and effort and stress of that to do something like that.

00:13:52.480 | But you're right.

00:13:53.120 | If the drawdown was bigger, yes.

00:13:55.280 | I don't think we're there yet.

00:13:56.080 | I mean, we barely hit 20.

00:13:58.080 | We were down 20, but now the market's rallied today.

00:14:00.080 | And I don't know where it's going to be by the time this gets released, as you know.

00:14:02.240 | So I don't know.

00:14:03.920 | I think it's a risky proposition.

00:14:06.000 | I don't recommend that type of stuff

00:14:07.440 | because you can get really wrecked by trying to lever up.

00:14:10.160 | Yeah, I'm not here recommending it or proposing that you recommend it.

00:14:14.640 | And the way I thought about it was, "Gosh, maybe if I had a certain amount of money,

00:14:18.320 | I wanted to invest over the next three months.

00:14:20.560 | Maybe I could invest those three months today and then just pay it back in two months."

00:14:25.920 | I always say when you borrow money,

00:14:27.920 | you need a plan to pay it back and you need to be comfortable with rates.

00:14:32.240 | And a lot of borrowing against your portfolio, against your home...

00:14:36.720 | Like at Helix, sometimes those rates aren't fixed.

00:14:39.760 | And so I will throw to anyone out there listening, thinking,

00:14:42.880 | "Buying the dip, maybe I should borrow for the expected return."

00:14:45.440 | One, take all the advice you just gave.

00:14:48.080 | And two, there are some expectations of interest rates going up,

00:14:51.440 | which could mean that that equation of how much it costs to borrow is going up also.

00:14:56.640 | So from my perspective, I don't think it's a timely or a wise thing to do.

00:15:01.680 | But I thought I'd touch on it a little.

00:15:03.440 | Yeah, I generally don't recommend that.

00:15:06.240 | I'm saying if you have extra cash, that's investable cash.

00:15:08.880 | I don't think for an emergency or anything, you have like, "Hey, I have extra cash by chance.

00:15:12.000 | Go ahead and buy."

00:15:13.600 | But if not, I'd say, "Wait. Don't do anything like that.

00:15:17.840 | Don't go beyond your means, basically."

00:15:19.520 | But another way to buy the dip, in a sense, could be to just rebalance.

00:15:24.640 | If your stock portfolio is down significantly and you wanted to be at 80/20 and you're at 70/30,

00:15:30.720 | you could sell some of those bonds when they're down and buy more stocks.

00:15:34.880 | Yes, that's another way of doing this.

00:15:36.480 | And obviously, it happens in the reverse too.

00:15:38.080 | When stocks are like, people think they're overheated and you reverse back,

00:15:42.160 | you sell some of the stocks to buy bonds, you can do the same thing there.

00:15:45.200 | So it works both ways, right?

00:15:46.720 | It's a natural rebalancing process.

00:15:48.400 | And over time, there will be drift.

00:15:50.160 | The higher return asset will eat most of the portfolio over time and so...

00:15:54.160 | Or become most of the portfolio over time.

00:15:56.000 | So you'll have to just kind of rebalance periodically.

00:15:59.200 | You know, maybe we're out of this whole thing by the time this comes out.

00:16:01.520 | So I don't want to spend too much time digging on how to invest when the market's down.

00:16:05.600 | But let's talk a little bit about what to invest in.

00:16:07.920 | I think you focus a lot in the book on income-producing assets.

00:16:13.520 | And when I heard that, I was like, "Hmm, I feel like I know what that is.

00:16:16.640 | But I feel like maybe it would be better to get your definition."

00:16:20.240 | These are assets that actually produce some sort of cash flow.

00:16:22.800 | They have some sort of fundamentals around how they're priced.

00:16:25.760 | So what that means is they're not just priced based on what people feel.

00:16:29.120 | Of course, how people feel about assets is going to change how they're priced.

00:16:32.000 | That's true of stocks, bonds, crypto, anything out there.

00:16:34.800 | That's going to be true, right?

00:16:36.080 | But income-producing assets have some sort of fundamental...

00:16:38.800 | There's some weight there, which is like the actual cash flows for that asset, right?

00:16:44.960 | Assuming they have cash flows, right?

00:16:46.880 | So I mean, you can think of it like...

00:16:48.480 | Imagine a suitcase with $50,000 in it.

00:16:52.160 | We all could be sitting here debating the value of the suitcase.

00:16:54.880 | But if we know there's $50,000 in that cash, that is a hard fact that we can use and be like,

00:17:00.480 | "Okay, the value of this suitcase should never go below $50,000, right?"

00:17:04.560 | I mean, historically, that actually is not true.

00:17:07.040 | Because Warren Buffett used to buy something called NetNets back in the day,

00:17:09.920 | which was like buying that $50,000 suitcase for $25,000.

00:17:13.200 | Because he would buy a company where the liquidation value of the company

00:17:17.200 | was worth more than what you could buy it for in the open market,

00:17:19.680 | which is kind of like...

00:17:20.560 | That's like an arbitrage.

00:17:21.600 | Those should never happen.

00:17:22.800 | And today, they basically never happen because people are smarter now,

00:17:26.160 | and then people have more data, and they're not allowing these types of things to happen.

00:17:29.120 | But that's just an example of income-producing assets are just a

00:17:32.080 | fundamental weight that keeps prices in line.

00:17:35.680 | And in the book, you outline a list of income-producing assets.

00:17:39.040 | And some of them, I think most people will be familiar with.

00:17:41.040 | Things like real estate and stocks.

00:17:42.960 | But one that I think most people aren't is royalties.

00:17:45.280 | You can talk about that.

00:17:46.640 | You can talk about farmland.

00:17:47.760 | Are some of these more alternative income-producing assets,

00:17:51.040 | things that you talk about because they exist,

00:17:53.440 | or you talk about because the average person might want to look into them?

00:17:56.720 | Well, I think it's something that people can consider looking into.

00:18:00.800 | I don't think any single asset class is necessary to build wealth.

00:18:05.120 | I think I've seen people do it with just real estate.

00:18:07.360 | I've seen people do it with stocks.

00:18:08.880 | I've seen people do it with farmland, etc.

00:18:11.200 | There's no one that's required.

00:18:13.440 | You don't need to have all these.

00:18:14.640 | I'm just trying to expose people to different asset classes and different options.

00:18:18.080 | I think, for example, in the case of farmland,

00:18:20.080 | that's something that during most good times,

00:18:22.080 | it's not really correlated as much with US stocks.

00:18:24.720 | Of course, most risk assets will decline together.

00:18:26.880 | That's going to probably be farmland as well.

00:18:28.720 | But the thing about farmland is it's just a different return stream.

00:18:32.000 | And so because of that, it's going to behave differently than stocks.

00:18:34.640 | So that's something to kind of keep in mind.

00:18:36.480 | It's like, "Hey, how am I diversified? And what do I own?"

00:18:38.880 | So I don't think there's any reason why you need to use those.

00:18:42.160 | You don't have to.

00:18:42.800 | I just want to expose people to different ideas out there.

00:18:45.040 | And just because they're like, "Oh, that's kind of cool."

00:18:46.560 | If you're a big music fan, I could understand why you might want to own royalties.

00:18:49.520 | I think there's a personal reason for that.

00:18:51.120 | I'm a big music fan.

00:18:52.400 | I think that's something I'll get into eventually.

00:18:53.920 | I think there's a lot of accredited investor rules and things around some of those things.

00:18:56.960 | So you have to just wait until you can do that unless the rules change.

00:19:01.920 | But that's just something to keep in mind.

00:19:03.600 | And for anyone who doesn't know, royalties,

00:19:05.760 | you essentially can just buy the income from an asset like an album

00:19:11.760 | or an entire collection of albums and people sell these in private investor groups.

00:19:16.960 | Is that right?

00:19:17.840 | Yeah, basically.

00:19:18.480 | So you can say, "Hey, I want 10 years of royalties for this particular song."

00:19:22.480 | And let's say they're selling those royalties for, I don't know,

00:19:25.280 | let's say 20 grand.

00:19:27.280 | That's what they sell and you get 10 years of it.

00:19:29.360 | But last year, the song made $5,000 in income.

00:19:32.480 | So they would have paid you $5,000.

00:19:33.680 | So next year, assuming the same...

00:19:35.440 | You're like, "Well, Nick, that's a great thing.

00:19:36.960 | If I get $5,000 for the next 10 years, that's $50,000.

00:19:39.680 | I only paid $20,000 for it. That's a great return."

00:19:41.600 | The problem is you don't know if the listens and streams

00:19:45.360 | and all those royalties are going to be $5,000 a year.

00:19:47.040 | They might be declining over time.

00:19:48.400 | You see the history and you need to guess about the future.

00:19:51.120 | I mean, obviously, if one of those artists were to die or something,

00:19:53.680 | you would see a huge spike in the royalties in that one year.

00:19:56.560 | Maybe the royalties would permanently be elevated.

00:19:59.120 | You don't know.

00:19:59.600 | And so you're guessing around the future.

00:20:01.040 | But it's also a cultural investment.

00:20:03.840 | I think it's more social than it is necessarily just the cash flows.

00:20:07.040 | But they both definitely matter.

00:20:08.480 | You said, "Don't buy individual stocks."

00:20:11.040 | But I'm curious if the message is more, "Don't trade stocks."

00:20:15.360 | And that if you want to buy 20 companies that you're excited about

00:20:18.560 | and build that basket of long-term investments,

00:20:21.520 | how do you feel about that approach?

00:20:23.040 | I think it's relative to the percentage of your wealth.

00:20:25.360 | So if you're doing that with 5% of your net worth, go ahead.

00:20:27.920 | If you're doing it for fun, go ahead. I don't care.

00:20:30.560 | But if you're going to put the bulk of your wealth in 20 companies that you're crazy about,

00:20:35.360 | I think that is a less prudent strategy than owning an index fund.

00:20:39.760 | Because the probability that those 20 companies are going to grow

00:20:42.800 | at the market rate over a long period of time is unlikely.

00:20:46.160 | I mean, most companies die.

00:20:47.360 | And the reason why you look at that chart of like, "Oh, here's the US economy."

00:20:50.480 | Or $1 invested in stock for the last 100 years or the S&P 500 for the last 50 years.

00:20:54.480 | That line isn't realistic because the companies in that line are always changing over time.

00:20:59.360 | The companies that are falling behind fall out.

00:21:01.920 | And the companies that are rising up get added in.

00:21:03.920 | It's like a momentum strategy.

00:21:05.040 | People don't realize that.

00:21:06.000 | So if you just do a buy and hold of 20 random companies,

00:21:08.640 | "I'm going to hold these for the next 40 years."

00:21:10.320 | Like half of those companies probably won't exist.

00:21:12.560 | A couple of them will probably do really well.

00:21:14.240 | But the question is, will those ones that do well offset all the ones that don't do well?

00:21:18.160 | And I don't know the answer to that, right?

00:21:20.160 | And so I don't recommend doing that for performance reasons.

00:21:22.720 | But most importantly, I don't recommend doing it because like,

00:21:25.360 | what I call the existential reasons, which is you don't know if you're a good stock picker.

00:21:28.560 | And I can get into that whole argument if you want.

00:21:30.560 | But unlike most endeavors where you can identify your skill, your talent pretty quickly,

00:21:35.360 | with stock picking, we don't know.

00:21:36.800 | You and I, Chris, can go pick a basket of stocks, come back a year.

00:21:39.360 | And if yours outperforms mine, does that mean you're a better stock picker?

00:21:42.080 | I don't know.

00:21:43.520 | I don't think we can say that with certainty after 1 year.

00:21:45.680 | I don't think we can say it even after 5 years.

00:21:47.360 | Maybe 10, we'd have enough of looking at our track records.

00:21:50.800 | We could probably say something.

00:21:51.760 | But after 1 to 2 years, no one knows, right?

00:21:54.240 | Just imagine someone who bought GameStop in July 2020, before the whole crazy

00:21:58.720 | WallStreetBets thing happened in early 2021.

00:22:02.640 | They had a huge return but had nothing to do with why they picked the stock.

00:22:06.000 | Had zero to do with their intuition about that, right?

00:22:09.040 | So I think there's a lot of luck here.

00:22:10.400 | And that's what makes it tough.

00:22:11.280 | You mentioned if we picked a basket of stocks, some won't be gone,

00:22:15.200 | which I think means it's maybe even more important to figure out when to sell.

00:22:19.360 | So I want to talk about that a little because I think for me personally, it's tough.

00:22:24.000 | You pick a stock, or you invested in crypto early on or something,

00:22:28.240 | where you have a little bit more of an attachment to it.

00:22:32.000 | I don't have a particular attachment to VTI, the total stock market.

00:22:35.680 | Nor do I want to stop holding it at any point.

00:22:39.440 | But for all these other things that people might have invested in, in their 10-15%,

00:22:42.960 | how do you think people should think about selling them?

00:22:46.000 | Or even if you work at a company, and you just have the stock in that company,

00:22:49.040 | and you have beliefs about it, how do you make it easier to sell?

00:22:52.400 | Either in advance when I know you could say, "This is my criteria."

00:22:56.320 | But maybe when you're not that smart or not that prepared in advance to have created criteria,

00:23:02.160 | how do you think about selling?

00:23:03.840 | So I think there's 3 reasons to sell.

00:23:06.560 | First reason, rebalancing.

00:23:08.000 | Sometimes that's just a natural thing.

00:23:09.280 | I don't think that's what you're asking in this question.

00:23:10.800 | So we're going to put that aside.

00:23:12.080 | The second reason is like, "Oh, let's say you want to..."

00:23:14.240 | The point of money, the point of investing is so you can live the life you want.

00:23:17.040 | So sometimes you need to sell stuff just because,

00:23:19.040 | "Hey, I'm going on a vacation.

00:23:20.080 | Maybe I want to do this, or I want to do something nice for somebody."

00:23:22.480 | You sell.

00:23:23.280 | I also assume that's not what you're asking either.

00:23:24.880 | So we're going to put that aside.

00:23:25.840 | So rebalancing and funding your lifestyle, let's put those aside.

00:23:29.120 | Reasons to sell.

00:23:30.080 | The third reason I think you should sell is to get out of a

00:23:32.960 | concentrated or losing position.

00:23:34.960 | Both are very different things because it's amplifying your risk.

00:23:38.400 | So if you have...

00:23:38.880 | I mean, it depends.

00:23:39.840 | If you're...

00:23:40.080 | Let's say you work at a company.

00:23:41.520 | You can think of that company paying you stuff as like a bond.

00:23:44.160 | You'd like a bond income.

00:23:45.440 | That's like the income you're getting from the company is like a bond.

00:23:48.320 | It's just a payment.

00:23:49.120 | You get every 2 weeks, you get your payment or your coupon payment.

00:23:51.760 | Now, why would you also want to hold the equity?

00:23:53.360 | You're like, "But Nick, this would be the next big thing."

00:23:55.840 | Okay, that's fine.

00:23:56.720 | I recommend finding what I used to...

00:23:59.600 | It's called the regret minimization framework.

00:24:01.280 | That's not something I came up with.

00:24:02.560 | Sell enough of it so that you can lock up some level of lifestyle.

00:24:07.040 | And then anything above that, if you want to let it ride, go ahead.

00:24:10.000 | But assume...

00:24:10.880 | I want you to imagine the future.

00:24:12.720 | If it goes to zero, how do you feel?

00:24:14.720 | If it triples, how do you feel?

00:24:16.080 | So sell the amount, the right amount such that no matter how the future unfolds,

00:24:20.400 | you're happy with your decision.

00:24:22.080 | I think that's the best way to do it.

00:24:23.440 | I think it's the only prudent way to do it.

00:24:25.280 | Because trust me, I had someone close to me who got a bunch...

00:24:29.680 | They went public.

00:24:31.040 | He saw his net worth shoot up by a lot of money.

00:24:33.920 | We're talking high 6 figures.

00:24:36.080 | But he was in a tech stock, a high growth tech stock.

00:24:38.560 | And now that company has collapsed by like 80%.

00:24:40.800 | So he's now seen his wealth drop.

00:24:43.600 | And now that 6-figure position is still 6 figures,

00:24:46.080 | but now it's very low 6 figures.

00:24:48.160 | And so he's seen this happen because he didn't want to sell any of it

00:24:50.560 | because he thought it was gonna be the next big thing.

00:24:52.320 | And I think he's having some regret because he should have sold

00:24:54.320 | probably some of it to lock up some lifestyle stuff.

00:24:56.880 | And I didn't force him.

00:24:58.560 | I just said, "Hey, here's what I would do.

00:24:59.760 | But you can do whatever you want."

00:25:00.800 | And then they did what they wanted and that's it now.

00:25:02.640 | So that's what to just think about is regret minimization.

00:25:05.360 | That's the framework I would use.

00:25:06.560 | So let's say you're holding one of those stocks.

00:25:09.360 | And right now, it's down more than the market is on average.

00:25:12.800 | There are a handful of tickers that are down, like you said, 80%.

00:25:16.480 | Let's say you're like, "Okay, is there an argument to stay in them?"

00:25:21.760 | Because if the whole market recovers,

00:25:23.680 | they're gonna recover at a rate that is maybe greater than the average market.

00:25:29.360 | Is the argument stay in them?

00:25:31.200 | Is it stay to something diversified, but closer to that profile?

00:25:34.800 | Like NASDAQ, tech index fund or something like that?

00:25:39.440 | How do you think about when you lost a large percent diversifying

00:25:43.760 | into something that probably won't recover at the same rate if it recovers?

00:25:46.880 | Yeah. So that's the thing.

00:25:48.320 | You don't know if it's going to recover.

00:25:49.600 | And so the only thing you can use is historical data.

00:25:52.320 | And I know if you look at the 1-year median return across any individual stock...

00:25:56.400 | I was using the Compustat database going to 1976.

00:25:59.280 | The 1-year return is like 6%.

00:26:00.720 | And the 1-year return on an index is 9%.

00:26:03.280 | So the probability that you're going to have one of these stocks,

00:26:07.280 | it's going to have one of these returns, it's going to do better is low.

00:26:09.520 | So it's more likely you're going to underperform just on...

00:26:12.640 | If we're picking stocks out of a hat, you're probably going to perform.

00:26:15.440 | I hear your argument like, "But look, these ones are like high beta.

00:26:17.920 | So when the stock market dips, they dip more.

00:26:20.000 | But when the stock market comes back, they come back more."

00:26:21.920 | Well, maybe that was true in this last run

00:26:24.640 | because tech was really high and everything was going well.

00:26:27.360 | But now maybe things have changed.

00:26:28.800 | I mean, I can't give you an answer that's going to satisfy you

00:26:31.680 | because I'd be like, "Oh, yeah, of course, they're going to come back."

00:26:33.520 | And you don't know.

00:26:34.720 | Like, the thing I like to think about is all the prices in the past

00:26:37.920 | could have just been imaginary.

00:26:38.960 | Like all that stuff, we were all very bullish on tech and like,

00:26:43.440 | "Oh, COVID is taking over the world and we're never going to come out of our houses.

00:26:46.480 | And this is everything."

00:26:47.280 | Like Zoom and Peloton, all these companies are now the future, right?

00:26:50.720 | And now that the world's kind of coming back to reality,

00:26:53.040 | like maybe that's not true.

00:26:54.160 | And so maybe all those prices were like kind of imaginary in some respect.

00:26:57.520 | So I don't know if we're going to see something like that.

00:26:59.920 | Then again, like we could go into another pandemic.

00:27:02.640 | I know it's crazy to say that.

00:27:03.440 | Will you go to another pandemic and then those companies start to thrive again?

00:27:06.240 | I just don't know.

00:27:06.880 | Like the future is so uncertain.

00:27:08.240 | So I wouldn't...

00:27:09.440 | I mean, it's really tough to be in that space when you're down 80%.

00:27:12.080 | It's like you have to just evaluate it going forward.

00:27:14.160 | I would say evaluate on risk parameters and not necessarily trying to get all your money back

00:27:18.080 | because you should just assume you're not going to.

00:27:20.080 | So what I'm doing, for example, I own 2 tech stocks.

00:27:22.400 | I won't say what they are.

00:27:23.200 | I'm not trying to pump them or anything.

00:27:24.560 | By the end of the year, if they're still down bad,

00:27:26.160 | I'm going to sell them and just have them as a tax loss.

00:27:27.840 | I'm holding through the end of this year.

00:27:29.280 | And if they come back, they do.

00:27:31.280 | If they don't at all, I'm selling at the end of this year regardless.

00:27:33.600 | And I'm just going to lock in the tax loss

00:27:35.040 | because I can write that off against other gains.

00:27:37.040 | So that's kind of how I look at it.

00:27:38.640 | That's a good strategy.

00:27:39.760 | Maybe I'm going to adopt that strategy for a handful of these small positions.

00:27:43.120 | What about...

00:27:45.200 | You mentioned income-producing assets.

00:27:46.640 | What about the other side of that equation?

00:27:48.240 | Other than crypto or art or anything like that,

00:27:52.240 | where do those things kind of fit into investing?

00:27:54.800 | I hold roughly 10% of my investable assets in those different types of

00:27:59.120 | what I call non-income-producing assets.

00:28:00.640 | So that actually does include most of the art and crypto.

00:28:03.040 | And I actually also put private companies,

00:28:04.640 | even though companies could be income-producing,

00:28:07.040 | I don't consider them income-producing.

00:28:08.560 | I consider them just like...

00:28:09.600 | I have a couple of very small private investments,

00:28:12.000 | like 1% of my net worth or something.

00:28:13.840 | And those aren't income-producing.

00:28:15.280 | So I always look at it like that.

00:28:17.360 | And when the price is based completely on what people are willing to pay for it,

00:28:22.960 | and there's no income, you kind of have to look at it that way.

00:28:25.520 | So I'm not saying you can't make money in them,

00:28:26.800 | and they're not good for risk reasons or a host of other things.

00:28:30.160 | But I just think you need to keep it a smaller proportion in your portfolio because

00:28:32.960 | it's really hard to show how those are going to keep going up in value in the same way that

00:28:38.400 | income-producing assets go up in value.

00:28:40.320 | There's a much more fundamental reasoning for why those should go up in value versus

00:28:44.320 | why art or crypto or anything else should go up in value.

00:28:47.280 | So let's jump a little bit to where we put the money.

00:28:50.560 | I think one of your contrarian takes in the book

00:28:53.360 | is that maybe you shouldn't max out your 401(k).

00:28:56.240 | Yes, that's one of my most contrarian takes.

00:28:59.040 | And I think it's a very disliked take, but some people see the value in it.

00:29:03.040 | For someone listening, it's like, "Wait a second. Wait a second.

00:29:04.880 | I've got my 401(k)."

00:29:06.960 | Let's set aside the match because I think we'll all agree that

00:29:09.520 | if your company is going to match your contributions, that's worth it.

00:29:12.320 | But if they're not, why would someone listening who's not getting matched

00:29:16.480 | want to stop and say, "Maybe I shouldn't do this"?

00:29:19.280 | Well, I think the point of this is to actually just open the conversation up.

00:29:23.040 | Because I looked and I was like,

00:29:24.880 | "9 out of 9 personal finance experts all said max your 401(k)."

00:29:28.560 | I was like, "Why? Is this true?"

00:29:29.920 | Maybe I should just look into the numbers and find out.

00:29:31.600 | And you actually look at the after-tax savings you get from above the match, as you said.

00:29:36.240 | So anything above the employer match was something like 0.7% a year.

00:29:39.600 | That's assuming a 15% capital gains rate and a bunch of other assumptions.

00:29:42.400 | But you're looking at 0.7% a year.

00:29:45.040 | And some 401(k) plans have all-in fees of over 1%.

00:29:49.440 | That means you're getting negative.

00:29:50.560 | Those people are paying 1% to be in their 401(k).

00:29:52.960 | They're getting -0.3% a year tax.

00:29:55.920 | They're paying a negative tax alpha, I guess you'd call it.

00:29:58.560 | You're losing money just to be in their 401(k).

00:30:01.520 | They would be better off if they didn't put any money in there and just held that on the outside

00:30:04.800 | and put it in a brokerage account and got lower fee options.

00:30:08.240 | So they could just manage it themselves.

00:30:09.920 | And so I just wanted to open this up so that people would actually look at their 401(k)s

00:30:13.440 | and say, "How much am I actually paying? All-in fees, everything."

00:30:16.080 | And if it's anywhere near, let's say 0.7%, you need to definitely get out of there.

00:30:21.760 | If it's 0.5%, then the question is,

00:30:24.080 | "Is it worth the extra 0.2% a year to lock up your money to 59.5%?"

00:30:29.040 | And I don't know for all the excess money.

00:30:30.640 | And I don't know what the answer is.

00:30:31.680 | So that's...

00:30:32.800 | And remember, I wrote about all this in the book.

00:30:34.800 | I was just comparing a 401(k) to a brokerage account where it's post-tax money and all this.

00:30:39.600 | What I didn't even consider, and I've since thought about since,

00:30:42.480 | it's like in a brokerage account...

00:30:44.240 | Most people don't know this.

00:30:45.120 | In a brokerage account, if your only income is capital gains,

00:30:47.920 | like dividends, capital gains, whatever,

00:30:50.160 | and that's your only income for the year,

00:30:51.360 | you can have $40,000 a year tax-free as a single individual.

00:30:54.720 | If you include the standard deduction right now, it's like $50,000.

00:30:57.280 | So if you're a couple...

00:30:58.400 | Now, multiply that by 2.

00:31:00.160 | A couple... A retired couple right now,

00:31:01.760 | let's say they have a $2 million portfolio,

00:31:04.240 | and it's paying them $1 million a year in income,

00:31:06.480 | like capital gains, dividends, etc.

00:31:08.640 | And that's the only income they have there.

00:31:09.920 | No Social Security, nothing else.

00:31:11.520 | They can have 0% tax on all that money.

00:31:14.480 | No taxes.

00:31:15.520 | So now if you use that,

00:31:17.040 | if you just have a well-managed brokerage account,

00:31:19.360 | that completely destroys maxing out a 401(k)

00:31:22.400 | because you're not putting money,

00:31:23.840 | locking it up to 59 and a half.

00:31:25.600 | And then it just makes absolutely no sense to do that

00:31:29.040 | when you can have a 0% tax-free,

00:31:32.320 | pulling money out of your brokerage account,

00:31:34.640 | which is wild to think about.

00:31:35.920 | But that's a real thing.

00:31:36.800 | You can look it up.

00:31:37.680 | Yes, a couple can pull out about $100,000 a year tax-free,

00:31:40.640 | as long as their only income is capital gains.

00:31:43.680 | And most people don't talk about that.

00:31:45.440 | And that's something that...

00:31:46.400 | Now, going back, I would have added that into the book

00:31:48.800 | as another counter-argument.

00:31:49.920 | But just think about that.

00:31:51.440 | That completely changes the retirement landscape.

00:31:53.520 | I'm like, "Do you need to max 401(k)?"

00:31:55.120 | Well, not necessarily.

00:31:56.160 | Because if you can build a big enough portfolio

00:31:58.080 | outside of your 401(k),

00:31:59.600 | you can even do it and have a much better tax treatment as well.

00:32:02.240 | I had Andy Ratcliffe, who started Wealthfront,

00:32:04.880 | where I work on the show.

00:32:07.040 | He has a similar take to you, but he added on.

00:32:09.520 | And so go back and listen to that episode

00:32:11.120 | if you want to go deeper on this.

00:32:12.800 | The cost of the liquidity,

00:32:14.080 | like the fact that if you need the money,

00:32:16.560 | you have to pay fees.

00:32:18.240 | And there isn't an easy way to get the money out.

00:32:21.040 | And his argument was that young people,

00:32:24.320 | you don't know what you're going to need money for,

00:32:26.080 | whether it's starting a company,

00:32:27.120 | whether it's buying a home,

00:32:28.160 | whether something happens.

00:32:29.200 | And so his point was like, "If the fees don't make sense,

00:32:33.200 | then it's a no-brainer that you shouldn't do it."

00:32:34.880 | And there are sites out there right now

00:32:36.480 | where I think you could just search 401(k) fee analysis.

00:32:39.360 | And they'll tell you sometimes it's the account fee.

00:32:42.000 | Sometimes it's these mutual funds that just get marked up.

00:32:44.560 | It's like you could get the same fund somewhere else,

00:32:46.320 | but we just charge you an extra half a percent.

00:32:49.120 | But there's also a cost to liquidity

00:32:51.680 | and not having access to your money if you need it.

00:32:54.160 | If you're not a good saver,

00:32:55.280 | maybe that's actually a benefit.

00:32:56.560 | Maybe if you can't access your money,

00:32:58.720 | it's probably better for you.

00:33:00.320 | But if you're not...

00:33:01.120 | If you are a good saver,

00:33:02.480 | I think that's another factor that plays into it.

00:33:04.800 | Yeah, I agree.

00:33:05.920 | And I think so some people say,

00:33:07.520 | "Locking up your money is a feature, not a bug."

00:33:09.360 | And I agree for some people that don't have discipline.

00:33:11.200 | This is not going to be a great idea

00:33:12.480 | because you're going to pull that money out

00:33:13.520 | and then probably spend it or something.

00:33:14.800 | So I completely understand that take.

00:33:16.800 | There's some benefits that could be on a spreadsheet.

00:33:18.560 | But yeah, I mean, that's my...

00:33:19.680 | That's why I even thought about looking into the numbers on this

00:33:22.480 | because I was like...

00:33:23.440 | I had the same issue where like,

00:33:24.960 | "Oh, wow. I couldn't buy real estate right now

00:33:26.720 | because I locked up way too much money into my 401(k)

00:33:29.600 | that I probably should have just done the 4%,

00:33:31.840 | got my match, and then had everything else on the outside."

00:33:34.240 | And I kind of regret that now.

00:33:36.080 | That's why I'm just trying to get this idea to people,

00:33:38.240 | especially young people who are like,

00:33:39.600 | "You're right. You don't know what you're gonna use the money for."

00:33:41.200 | And so just having that kind of in mind

00:33:43.840 | is kind of helpful, I think.

00:33:44.800 | If you want to have a diverse portfolio,

00:33:47.120 | maybe there's some assets you put in your retirement account,

00:33:49.360 | some you put in your Roth IRA,

00:33:50.880 | some you put in your taxable account.

00:33:53.280 | And for someone versed, it's kind of like asset location.

00:33:56.400 | Is that really a big deal?

00:33:58.400 | I think I saw somewhere that you either don't do it

00:34:01.360 | or it's not an important part of your investing strategy,

00:34:03.760 | which made me question whether it's worth it.

00:34:06.000 | I mean, there's two different ways of looking at it.

00:34:08.320 | If you're trying to maximize every dollar,

00:34:10.720 | there's an optimal way to do it.

00:34:12.080 | And I can tell you, you want to put your highest growth assets,

00:34:14.480 | the things you think are going to grow the fastest,

00:34:16.080 | let's say stocks.

00:34:17.680 | And let's say there's only two assets.

00:34:19.680 | There's stocks, which are high growth.

00:34:21.120 | And let's say they're bond, which are low growth.

00:34:23.120 | In that scenario, you would put all your high growth assets

00:34:25.920 | into your non-taxable accounts.

00:34:27.440 | Your 401(k) would be all stocks.

00:34:29.360 | Your IRAs would be all stocks.

00:34:31.760 | And then your bonds would sit in your taxable accounts

00:34:34.080 | where you have to pay whatever on the income that you're saying.

00:34:36.800 | But Nick, they pay the income.

00:34:37.760 | But if you actually look at the math, the high growth,

00:34:40.240 | it's going to-- all the taxes on the capital gains

00:34:42.320 | are going to be much bigger than any sort of income

00:34:43.760 | you're going to have to pay on a bond,

00:34:44.720 | especially with yields as low as they are today.

00:34:46.720 | The income is very small.

00:34:48.000 | So if you're trying to just go like maximize every dollar,

00:34:50.960 | there is an asset location argument to be made.

00:34:52.880 | But if you want to do a convenience argument,

00:34:54.480 | which is what I care about,

00:34:55.440 | I just make all my accounts look basically the same, right?

00:34:57.760 | Like they're like carbon copies of each other

00:34:59.440 | in terms of the asset allocation.

00:35:01.200 | I don't put the same funds in all of them.

00:35:03.920 | And the reason I don't is for something

00:35:05.840 | because I do tax loss harvesting like once in a while.

00:35:08.320 | And if you don't do that correctly,

00:35:10.080 | this is where you kind of need a professional sometimes.

00:35:12.160 | If you don't do that correctly,

00:35:13.040 | you can do something called a wash sale.

00:35:14.320 | And basically, you try to tax loss harvest like lock in a loss.

00:35:17.120 | But then if you buy something like one of your IRAs,

00:35:19.440 | you buy the same thing.

00:35:20.240 | It's all washed.

00:35:21.040 | Like you would-- it's a very complex like topic.

00:35:24.080 | I don't want to get into here.

00:35:25.120 | But like it's one of these things where like

00:35:26.800 | you need to be careful how you do this.

00:35:28.320 | So like I just recommend talking to a professional

00:35:30.240 | and kind of getting that type of advice

00:35:31.600 | because you're trying to do certain types of tax games in there.

00:35:34.480 | You're going to have to just be careful what you do.

00:35:36.000 | But just for ease of use,

00:35:37.120 | I like having the same allocation across all my accounts

00:35:40.000 | because then rebalancing is much easier

00:35:41.680 | because I can rebalance within an account.

00:35:43.520 | If I have all my stocks in one account

00:35:45.440 | and all the bonds in another account,

00:35:46.720 | how do I get the money out of the 401(k)

00:35:48.400 | and into my brokerage?

00:35:49.280 | You can't do that.

00:35:50.400 | So because that also makes it easier for rebalancing.

00:35:52.720 | So for a host of reasons,

00:35:53.760 | I recommend the carbon copy model,

00:35:56.160 | cookie cutter model of asset location.

00:35:59.120 | Yeah. When it comes to tax loss harvesting,

00:36:01.520 | one of the saddest emails I've ever gotten

00:36:04.800 | was from people while I was working at Wealthfront.

00:36:07.280 | They're like, "Gosh, I've been running

00:36:08.480 | three robo-advisor portfolios

00:36:11.760 | and tax loss harvesting on all of them."

00:36:14.400 | Which effectively meant they're buying and selling

00:36:16.400 | the same index funds to optimize their taxes,

00:36:18.720 | but three people completely uncoordinated are doing it.

00:36:21.840 | And the end result is just not going to be fun.

00:36:24.640 | So I always say if you are doing

00:36:27.440 | any kind of tax loss harvesting,

00:36:29.120 | make sure that whoever's doing it

00:36:31.200 | knows all the rules across all the accounts.

00:36:33.840 | Otherwise, it can be messy.

00:36:35.200 | Even just the investing of it.

00:36:37.440 | If you are investing regularly in your IRA, like you said,

00:36:41.040 | if you're buying the same thing,

00:36:42.240 | your tax loss harvesting somewhere else can be a problem.

00:36:44.400 | The single feature that I thought was the coolest

00:36:48.160 | is in Wealthfront, you can go in and put an email address

00:36:50.640 | and they have to confirm, I think.

00:36:52.080 | But so my wife and I each have an account.

00:36:53.920 | If we put our email addresses in Wealthfront,

00:36:55.840 | we'll link them up and tax loss harvest

00:36:58.480 | accordingly across all the accounts.

00:37:00.880 | So there's software that could do it.

00:37:02.560 | There are advisors that could do it.

00:37:04.000 | You could do it once a year

00:37:05.040 | where you know everything's happening.

00:37:06.560 | But if you're trying to play the tax games,

00:37:08.560 | I'm with you that you just got to be careful

00:37:10.560 | because the tax games all go away if you mess it up.

00:37:13.840 | Yeah. Especially if you're tax loss harvesting,

00:37:15.760 | I'd recommend do not automatically reinvest your dividends.

00:37:18.960 | That's also another nightmare

00:37:20.320 | because you could sell out of a position

00:37:22.080 | and then it automatically reinvest and starts to wash.

00:37:24.960 | That's another wash sale thing

00:37:26.080 | where you now don't get the tax loss at all.

00:37:27.840 | So you got to be really careful.

00:37:29.600 | We could do a whole episode just on that

00:37:32.080 | because I've made all the mistakes now

00:37:33.520 | and I know all the things to look out for.

00:37:35.280 | But it's just it's so complex that I agree.

00:37:37.440 | You need like one person in the so-called driver's seat

00:37:40.800 | trying to figure out all the accounts and everything.

00:37:42.720 | Otherwise, you're going to wash sale yourself.

00:37:44.800 | It's not a matter of if, but when.

00:37:46.160 | You got to be really careful.

00:37:47.120 | So yeah.

00:37:48.640 | Or like you said, a hack there would be

00:37:50.880 | just have a different set of funds.

00:37:52.720 | If you are investing in 2 different accounts

00:37:55.440 | and you don't want to have to deal with that,

00:37:57.360 | just pick a different set of index funds in each account.

00:37:59.520 | So you're not at risk.

00:38:01.520 | Yeah, exactly.

00:38:02.240 | Also, all my non-taxables are identical

00:38:04.560 | because I can do whatever

00:38:06.000 | and I'm not going to get any sort of wash sale

00:38:07.680 | because they're all non-tax.

00:38:08.800 | My IRAs, 401ks, etc.

00:38:10.560 | But then all my brokerage stuff

00:38:12.000 | is a completely separate set of funds.

00:38:14.640 | So there's no overlap there

00:38:16.160 | because I don't want any sort of accidents

00:38:18.160 | to happen, so to speak.

00:38:19.120 | We talked a lot about investing

00:38:21.280 | and a lot of the book is about saving.

00:38:23.840 | And I did want to touch on one thing

00:38:26.240 | where you talk a little bit

00:38:28.160 | about how some people early on

00:38:29.760 | might be focusing too much on investing

00:38:31.760 | and when they should be focused on saving.

00:38:34.240 | Why is that?

00:38:35.200 | Well, I mean, let's just do some simple math here.

00:38:37.440 | It'll show, it'll illustrate it instantly, right?

00:38:39.360 | Imagine you have $1,000 to your name, right?

00:38:41.760 | You're 22 years old like I was or 23.

00:38:43.760 | I'm like, "Hey, I'm starting investing.

00:38:45.440 | I spent all this time analyzing my investments and all this."

00:38:47.760 | Let's say you get a 10% return.

00:38:49.520 | That's $100, right?

00:38:51.120 | At the same time, when I was 23,

00:38:53.360 | I was out in San Francisco with friends.

00:38:54.800 | We'd go to dinner, have drinks, Uber home, all that.

00:38:57.600 | I easily was spending $100 in a single night.

00:39:00.800 | Me foregoing one night going out with my friends

00:39:03.040 | was the same as my investment return for a year.

00:39:05.120 | So, you can see when you don't have a lot of capital to invest,

00:39:08.080 | especially younger people, people who are just starting.

00:39:10.640 | It's not going to matter what your investments do.

00:39:13.200 | That's the sad truth.

00:39:13.840 | No one wants to talk about it,

00:39:14.800 | but it's not really going to matter what happens.

00:39:16.640 | And once you start building that nest egg, then it does.

00:39:19.280 | And so, you can see generally over someone's life.

00:39:21.440 | I mean, the phrase I like to use

00:39:22.960 | since the chapter one in the book

00:39:24.240 | is called "Savings for the poor and Investing for the rich."

00:39:27.280 | And I don't mean poor in an absolute way.

00:39:29.440 | I mean, it could be true in an absolute way,

00:39:31.040 | but I really mean in a relative way.

00:39:32.480 | If you're young, you're probably poor

00:39:34.560 | relative to your future self.

00:39:36.080 | You're assuming you're going to have a career, save money, etc.

00:39:38.560 | You're relatively poor compared to your future self.

00:39:41.040 | And so, you need to focus more on your income,

00:39:43.600 | your savings, things like that.

00:39:44.720 | And as you get older,

00:39:45.840 | you can spend a lot more time on investments.

00:39:47.280 | That doesn't mean you shouldn't read books on investing.

00:39:48.960 | I'm not anti-knowledge. Of course not.

00:39:50.640 | Of course, I want people to learn more about this stuff.

00:39:52.800 | But you don't need to spend a ton of time on it,

00:39:54.480 | at least initially.

00:39:55.360 | Just set something up.

00:39:56.560 | "Oh, should I be in a target date? Should I do this?"

00:39:58.800 | It's not going to matter that much if you're 22 or 23.

00:40:01.040 | It's really not.

00:40:01.760 | But as you start to learn more about stuff,

00:40:03.680 | start saving up more money,

00:40:04.640 | then your investment decisions matter.

00:40:06.000 | Because now let's do the flip side.

00:40:07.440 | Let's say you have a $10 million portfolio,

00:40:09.200 | and it declines by 10%.

00:40:10.560 | That's $1 million.

00:40:11.360 | Someone that could save $1 million after tax,

00:40:14.480 | you have to have a very high-paying job.

00:40:16.560 | There's very few people that can do something like that.

00:40:18.560 | So you can see, once you have a big portfolio,

00:40:20.960 | investing is kind of the whole game.

00:40:22.400 | Your income is not going to be able to do much to budge that,

00:40:25.840 | but your investment knowledge and what you do

00:40:28.800 | and what you own really matters a lot more.

00:40:30.640 | So just think about where do you have the most leverage?

00:40:33.120 | If you want to talk about a hack,

00:40:34.720 | the best hack I know is take your time and attention

00:40:37.360 | and focus on the area where you have the most leverage.

00:40:39.120 | When you're 22, when you're young, it's your career.

00:40:41.520 | And as you get older, and assuming you have more wealth,

00:40:44.160 | it's your investments.

00:40:44.960 | And so figuring out where you are on that spectrum

00:40:47.760 | is what's important.

00:40:48.560 | So the little rule I like to use is just figure out

00:40:51.920 | how much you could save in the next year.

00:40:53.360 | That's some number, let's say $10,000.

00:40:55.040 | Figure out how much your investments can return you

00:40:57.920 | in the next year.

00:40:58.400 | Let's say in a good year, you can get a 10% return.

00:41:01.600 | Let's just use that number for fun.

00:41:03.200 | 10% return, unless you have $50,000 invested,

00:41:05.840 | that's $5,000.

00:41:06.960 | So if you could save $10,000,

00:41:08.080 | but your investments can only earn you $5,000,

00:41:09.680 | you probably need to work a little bit more on

00:41:11.360 | either raising your income or saving more money

00:41:13.920 | to get that other number higher.

00:41:15.520 | You want that $50,000 to be $100,000 and then $200,000, etc.

00:41:19.040 | So that if it gets a 10% return,

00:41:21.120 | that the amount of income you're gonna get is larger.

00:41:23.200 | So whatever number is bigger is where you need to focus on.

00:41:25.120 | Because over time, you're going to see that

00:41:26.640 | your investments are gonna be able to return you

00:41:28.240 | more than you can save in a year, in theory.

00:41:30.320 | So if everything goes well.

00:41:31.840 | So that's what they're focused on.

00:41:32.800 | And so let's go down that journey.

00:41:34.880 | Now you're at the point your investments are earning you more.

00:41:37.360 | You're kind of in that second half of the journey.

00:41:40.960 | And you're in a situation where I know a lot of people are,

00:41:45.440 | which is they're struggling to spend money.

00:41:47.600 | They've gone through this disciplined cycle of saving.

00:41:50.320 | And now... And maybe they're not all the way there.

00:41:52.320 | Maybe they're still saving more than they would earn in their investments.

00:41:54.800 | But they're struggling because they don't want to spend money.

00:41:58.240 | And I know so many people that have that guilt and anxiety,

00:42:01.600 | myself, my wife included,

00:42:03.520 | where we're trying to feel comfortable spending money.

00:42:06.480 | Because after all, what is all the money for

00:42:09.200 | if we're not able to actually use it on the things we want?

00:42:13.120 | But people who, I guess, adopt a diligent savings habits

00:42:17.440 | sometimes struggle here.

00:42:18.640 | Yeah. So this is a problem that a lot of people have,

00:42:20.720 | especially people who are affluent, who have done well.

00:42:22.880 | Because by definition, the people that have a lot of money have probably...

00:42:26.880 | Besides the people who got lucky, let's put them aside,

00:42:29.040 | have probably had pretty good savings habits, right?

00:42:31.040 | So it's like you're actually really good at acquiring money

00:42:34.400 | and you're not really good at spending.

00:42:35.760 | So by definition, it's going to be difficult.

00:42:37.680 | That's the first thing to realize.

00:42:39.040 | It's not going to be easy for you.

00:42:40.400 | I think the second thing to recognize is a lot of this comes from guilt.

00:42:43.840 | Whether it's guilt, you're guilting yourself,

00:42:45.840 | or you're seeing the media guilt people,

00:42:47.920 | or maybe your social circles would be guilting you.

00:42:49.920 | I don't know what it is.

00:42:50.880 | And every person is going to be different.

00:42:52.640 | It's figuring out how to get past that guilt.

00:42:54.880 | And I'm not saying that, "Oh, if you have a lot of money,

00:42:57.280 | you should be spending a lot of money."

00:42:58.400 | That's not my argument here.

00:42:59.360 | But I'm saying you should be comfortable spending money when you need to, right?

00:43:03.040 | I don't want you to spend money frivolously.

00:43:04.480 | I don't think that's good for anybody.

00:43:05.920 | But if you're like, "Oh my gosh, I don't know if I should buy these

00:43:08.160 | nice dress shoes because my other ones, they're fine,

00:43:12.400 | but they're kind of getting old."

00:43:13.200 | And if you're worried about $200 purchase,

00:43:14.880 | and you're worth like 2 million bucks or 5 million bucks in net worth,

00:43:18.080 | that you need to get something psychologically figured out.

00:43:22.800 | Why are you feeling that way about spending money?

00:43:24.720 | And sometimes it is from stuff you can't change.

00:43:27.200 | For example, I go out and spend a lot of money at restaurants.

00:43:29.600 | That's the thing I like to do.

00:43:31.120 | But at the same time, every time I go to McDonald's,

00:43:33.600 | I still order off the dollar menu because that's what my mom and dad

00:43:37.200 | always had me order off as a kid.

00:43:38.320 | And there's this weird thing where I can't get over it.

00:43:40.640 | I can go drop $60 on a dried ribeye steak.

00:43:43.520 | But there's something about me spending $5 on a McDonald's sandwich

00:43:46.560 | that's going to mess with me mentally.

00:43:48.560 | And so I don't know why that is.

00:43:50.000 | And so you got to figure out what in my psychology is making me do that,

00:43:53.200 | and what in your psychology is making you kind of behave the way that you are.

00:43:56.560 | So tips to do it.

00:43:58.320 | I would say if you want to spend...

00:43:59.600 | I have a rule I use.

00:44:00.720 | It's called the 2x rule.

00:44:01.760 | If you're going to splurge on something,

00:44:03.440 | let's say you're going to spend $500 on some fancy watch or handbag or whatever.

00:44:07.040 | It doesn't matter what it is.

00:44:07.920 | Take another $500 and either invest it or donate it.

00:44:11.760 | Like donate to a good cause.

00:44:12.960 | Now you can get rid of your guilt saying,

00:44:14.160 | "Every time I spend on myself, I'm also donating."

00:44:16.160 | So now, yes, you're going to be spending more money,

00:44:18.080 | but at least you can kind of get rid of that guilt

00:44:20.000 | and spend it towards something that you care about in some other way.

00:44:22.720 | So that's another way of doing it.

00:44:24.320 | You can try and do that.

00:44:25.440 | It doesn't work for everyone, but I've heard some good results from it so far.

00:44:28.240 | You said you could also invest it.

00:44:30.480 | So if you're investing it, you're not giving it away.

00:44:32.560 | You're just kind of setting it aside for the future.

00:44:34.720 | For your future self, yeah.

00:44:36.080 | Can you talk a little bit about what you call the biggest lie in personal finance?

00:44:39.840 | What I think is the biggest lie in personal finance is that you can...

00:44:43.120 | That cutting spending is a reliable path to building wealth.

00:44:46.400 | And I just don't think the data suggests that at all.

00:44:49.360 | Like, yes, you can cut spending.

00:44:51.040 | It's like a short-term workaround, but it doesn't build wealth of the long run.

00:44:55.120 | I mean, just consider this.

00:44:56.240 | Very simple.

00:44:56.800 | Like, if you look at the data, like one of the most positively correlated things

00:45:01.360 | with savings rate is your income.

00:45:03.040 | Like your absolute level of income.

00:45:04.480 | Like people with...

00:45:05.120 | And you're gonna say, "Well, Nick, this is so obvious."

00:45:06.800 | Well, it's so obvious, but yet people are still pushing this cutting spending argument, right?

00:45:11.520 | It's like people with higher incomes generally save more money.

00:45:14.480 | That is just across the board.

00:45:15.680 | The higher rate, they're even saving a higher percentage of their income.

00:45:18.640 | And the reason is simple.

00:45:19.600 | Like incomes go up, but your spending doesn't move with it, right?

00:45:22.720 | It's like law of the stomach.

00:45:23.600 | Like if I increase your income 10x, are you gonna spend 10 times more on food?

00:45:26.800 | Probably not, right?

00:45:27.840 | Are you gonna spend 10 times more on housing?

00:45:29.840 | Maybe, but probably not.

00:45:30.880 | Maybe you'll spend 8 times more on housing.

00:45:32.240 | I don't know.

00:45:32.640 | But you see people generally earn more and more money.

00:45:35.200 | They don't spend more and more.

00:45:36.640 | And you're like, "But Nick, I know someone that had...

00:45:39.280 | I know this rich person.

00:45:40.240 | I know this person has high income.

00:45:41.200 | They spend a lot."

00:45:41.760 | Yes, you know these people.

00:45:42.880 | You know a handful.

00:45:43.600 | You can think of anecdotes.

00:45:44.560 | I know people like that too.

00:45:46.000 | But the data suggests, if you're looking across aggregate data sets across most people,

00:45:49.920 | that that is just not true.

00:45:51.680 | And I'm sorry to burst the bubble, but it's just...

00:45:53.840 | It's not in there.

00:45:54.480 | And if you wanna bring other data sets that show this, I'd be happy to look at them.

00:45:58.320 | But I have not seen any data sets that show that people of higher income are spending money

00:46:04.000 | at a higher rate than people of lower income.

00:46:05.920 | So, I think it really shows that really the way to get rich in the long run,

00:46:09.440 | the most reliable path, it does take longer, is to raise your income.

00:46:12.240 | And find other income opportunities.

00:46:14.000 | Work on your career, whatever.

00:46:15.200 | Work on a side hustle that becomes a main hustle, whatever.

00:46:17.280 | There's a lot of ways to do this.

00:46:18.800 | But it's what I recommend.

00:46:20.400 | And you break down each one of those in...

00:46:22.320 | I can't remember which chapter in the book, right?

00:46:24.320 | Yeah. Chapter 3, I talk about different ways you can raise your income, right?

00:46:27.280 | Different.

00:46:27.840 | If you really need that type of stuff, there's different ways of doing it.

00:46:30.240 | Whether it's selling a product, whether it's selling a skill or a service,

00:46:33.680 | teaching people, there's a lot of different ways you can do this.

00:46:35.920 | And mine is just like a limited set just to get your ideas flowing if you need that help.

00:46:40.400 | But that's really the only way out as I see it.

00:46:43.200 | Cool.

00:46:43.920 | As you build more wealth, it doesn't matter.

00:46:46.240 | And we've talked about this before, but you're never going to feel rich.

00:46:48.960 | So I don't want to get into that paradigm because I know we've talked about it a lot.

00:46:52.800 | But I am curious if you have any stories, anecdotes, or tips for people who are in

00:46:58.160 | that boat where they're like, "Gosh, I feel like I'm at a place where

00:47:02.400 | I thought when I got here, I'd be great.

00:47:04.560 | And now I just feel exactly like I did 1 year, 5 year, 10 years ago."

00:47:09.360 | I think the easiest way to do it is to remember where you came from.

00:47:12.640 | Think about... Have an absolute measure of wealth.

00:47:16.000 | For example, if you have over $100,000 in liquid net worth,

00:47:20.880 | that puts you in the top 10% of people on the planet in terms of how rich you are.

00:47:25.120 | I would say that's considered rich.

00:47:26.320 | And you're saying, "Nick, that's ridiculous. You can't compare me to some

00:47:29.680 | random person else out there in the world." That's not fair.

00:47:34.000 | But in the book, I talk about this.

00:47:36.320 | Lloyd Blankfein, the ex-CEO of Goldman Sachs, was interviewed about this.

00:47:39.600 | They asked him just about his life.

00:47:42.880 | And he's like, "I don't feel rich. I'm well-to-do."

00:47:44.480 | Even though he's a billionaire.

00:47:45.280 | This person's a billionaire. He says, "I'm not rich. I'm well-to-do."

00:47:47.280 | And you're saying like, "That's a ridiculous argument.

00:47:49.200 | How can you say, Lloyd Blankfein, that you're not rich?"

00:47:51.680 | Well, because he's hanging out with people like David Geffen and Jeff Bezos,

00:47:54.880 | and people who have 10, 100x his wealth.

00:47:56.880 | So he doesn't feel rich relative to them.

00:47:59.200 | Well, I can make the same argument that like, "Hey."

00:48:02.720 | I know what he's saying is outlandish.

00:48:04.160 | But what you're saying about how like, "Oh, well, you can't compare me to those

00:48:07.440 | other people around the world."

00:48:08.480 | It's the same thing.

00:48:09.200 | Lloyd Blankfein doesn't think that you can compare him to people like you and me.

00:48:12.880 | Because he's like, "That's not my social circle. Those aren't my people."

00:48:16.320 | So you're making the same argument he's making.

00:48:18.480 | Obviously, it's less objectively outrageous.

00:48:20.800 | But it's the same argument.

00:48:22.000 | So I think you have to look at global wealth.

00:48:24.000 | You have to look at absolute thing relative to your history.

00:48:26.960 | What you could expect to earn or expect to have in your life.

00:48:29.760 | I think that's the only way to stay grateful and

00:48:31.840 | to kind of break out of that cycle of not feeling rich.

00:48:33.840 | Like, for example, I consider myself rich despite...

00:48:36.640 | I'm not a millionaire.

00:48:37.440 | Like, objectively, in the United States, I'm not rich.

00:48:40.800 | But like, relative to the world, I consider myself rich.

00:48:43.360 | And so I have to think like that.

00:48:45.120 | Otherwise, I will always be chasing that type of stuff.

00:48:47.600 | And so I think you have to kind of remember that and kind of have some...

00:48:50.640 | That's how you ground yourself.

00:48:51.680 | So I consider...

00:48:52.240 | I would consider myself a rich person, despite the fact that I'm not even a millionaire.

00:48:56.240 | I'm not someone who can go around and fly private or any of that type of stuff,

00:48:59.360 | which we would really...

00:49:00.080 | Which we would consider rich behavior.

00:49:01.760 | I think it's just a way of looking at the world so that I don't kind of lose myself

00:49:06.960 | to that type of stuff.

00:49:08.240 | Taking out of your mind that flying private is rich behavior.

00:49:11.760 | It's probably going to help because I feel like most of us will probably never get to that point.

00:49:16.400 | We did have an episode where we talked about how you might be able to do it for a little bit less.

00:49:20.560 | But no matter how you slice it, it's just really expensive.

00:49:24.160 | So don't put that as a target or a goal.

00:49:26.640 | You can always use points in fly business class for way less.

00:49:30.400 | So I think most people here know that.

00:49:32.320 | Yeah.

00:49:32.820 | You ended the book talking about this experiment where you said,

00:49:37.920 | "If I were able to create some principles that I would give to myself,

00:49:43.200 | if I were randomly dropped somewhere in the last 100 years,

00:49:46.000 | what would I create if those principles weren't like avoid the stock market

00:49:51.600 | during a certain time period or something?"

00:49:53.440 | And you said that was the book.

00:49:54.640 | The idea was you wanted to write this book, I assume, for anyone at any point in time to read.

00:50:00.480 | But there were 21 principles.

00:50:02.720 | So I'm curious, if you had to pick only a couple, what would they be?

00:50:06.480 | We just discussed one of them.

00:50:07.680 | You'll never feel rich and that's okay.

00:50:09.600 | I think that's a huge principle.

00:50:10.880 | And because throughout history, status is always going to be something that affects humans.

00:50:15.440 | It's going to be something true today, 100 years from now, 1000 years from now.

00:50:19.120 | I know that's going to be true.

00:50:20.320 | I don't know what the investment environment is going to look like,

00:50:22.240 | whether we're going to have investments.

00:50:23.520 | You go back a couple hundred years, investing wasn't a thing that people did,

00:50:26.800 | especially regular people did.

00:50:28.320 | It was something that maybe the rich did or governments did,

00:50:30.400 | but regular people wouldn't do that.

00:50:32.080 | So yeah, you're never going to feel rich.

00:50:34.560 | That's one thing.

00:50:35.200 | If I had to guess, I assume markets on average will keep

00:50:39.760 | going up and to the right over the very long term.

00:50:42.000 | There's going to be human growth.

00:50:43.280 | I think capitalism will survive despite all the critiques against it.

00:50:46.640 | Which means if that's true, then buy quickly, sell slowly.

00:50:50.000 | That is a kind of an idea I had for thinking about how to invest in markets.

00:50:54.640 | Don't wait.

00:50:55.200 | Don't sit in cash forever trying to wait and trying to find the right time,

00:50:58.240 | those market timing things.

00:50:59.200 | So that's kind of like an overarching point of my work.

00:51:02.960 | That's another big one I'd put out there.

00:51:04.480 | I think another one which people don't discuss enough...

00:51:07.440 | I know there's a lot of money things we can talk about,

00:51:09.120 | but I think a lot of the things that affect people is more about their life.

00:51:11.680 | So that's why I talk about not feeling rich.

00:51:13.360 | But in addition, before...

00:51:16.720 | Figure out not where you're going to retire from, but where you're going to retire to.

00:51:21.280 | That's what's really important in retirement.

00:51:23.200 | A lot of people think retirement is about money and all this.

00:51:25.520 | And don't get me wrong, money is a piece of it.

00:51:27.360 | But I think the existential crisis of retirement is a far bigger thing

00:51:31.040 | that people do not talk about.

00:51:32.400 | And it's literally a big life change.

00:51:34.800 | You go from going into an office every day or talking with people,

00:51:37.440 | whatever you're doing, to now you don't do that anymore.

00:51:39.680 | You have to fill that entire 40-hour week with other things.

00:51:43.120 | And I think a lot of people aren't ready for that.

00:51:44.720 | And it really hits them in a bad way.

00:51:46.800 | So before you figure out what you're going to retire from,

00:51:49.360 | figure out what you're going to retire to.

00:51:50.800 | Really imagine your retirement.

00:51:52.240 | Figure out what type of activities you're going to do, with who, how often, etc.

00:51:56.960 | Is that going to be with family, with friends, whatever?

00:51:58.880 | I think a lot of that...

00:51:59.840 | We should put a lot more emphasis on that,

00:52:01.440 | because I think that's going to have a bigger impact on people's well-being

00:52:04.960 | than whether they can use the 4% rule or the 3% rule.

00:52:08.080 | I don't think money is the primary concern for most people in retirement.

00:52:11.840 | And I think my book has illustrated that.

00:52:13.760 | If you read chapter 2, it talks about that at length.

00:52:16.720 | So if I had to give a couple principles, the market timing one,

00:52:19.280 | because it's kind of my bread and butter what I talk about.

00:52:21.280 | I'd say the feeling rich thing,

00:52:22.560 | because I think a lot of people don't focus on that.

00:52:24.640 | And then same with the retirement thing.

00:52:26.640 | Thinking about much...

00:52:27.920 | Think beyond money when it comes to retirement.

00:52:29.600 | Those are the 3 big ones I'd give out.

00:52:31.040 | I know that from our conversation outside of this interview,

00:52:34.240 | you have some life hacks, some tricks, some tactics, some routines

00:52:38.480 | that are worth sharing that have nothing to do with personal finance or investing.

00:52:41.920 | So I'm curious, while we have you, what some of your top ones are.

00:52:45.840 | If you live in a city where they have laundry services,

00:52:49.040 | I recommend getting your laundry done.

00:52:51.440 | Just taking it in there or have them pick up, deliver.

00:52:54.320 | I think it's one of the biggest...

00:52:55.360 | I actually have a friend who lives in Long Island.

00:52:56.800 | So he actually doesn't... He has to drive it in and stuff.

00:52:59.600 | And he's like, "It's the greatest thing I've ever done."

00:53:01.920 | It's because it saves you time and it's so low cost relative to your time.

00:53:05.200 | I hate folding clothes.

00:53:06.320 | It's one of the best things I've ever done.

00:53:08.320 | I feel like every time I spend my money there,

00:53:09.920 | I'm getting a bargain relative to doing my laundry by hand.

00:53:13.360 | And especially if you have a wife and kids or whatever,

00:53:15.360 | or husband and children, whatever it is, that's a ton of clothing.

00:53:19.600 | You have to physically wash it, dry it, sort it out, fold it.

00:53:24.720 | It's just so much time and mental energy that especially if you're really busy,

00:53:27.840 | having someone else just do that and getting it delivered all full,

00:53:30.800 | and you just got to put it in a drawer is so much easier.

00:53:33.920 | That's my first hack.

00:53:34.720 | Have someone else do your laundry if you can,

00:53:37.040 | if there's an area where you can find that where they have laundry services.

00:53:40.080 | I think it's probably one of the most undervalued things out there.

00:53:42.320 | That's one.

00:53:44.080 | Another thing, this is a travel hack I use.

00:53:46.320 | I have duplicates of almost...

00:53:48.080 | Like, "Oh, I have to pack a toothbrush. I have to pack this. I have to pack..."

00:53:50.880 | Nope. I have everything already sitting in my suitcase ready to go.

00:53:54.000 | The only thing I have to still pack is clothing because weather does change.

00:53:57.840 | If I'm in Seattle, it's very different than I'm in Phoenix,

00:53:59.920 | especially if I'm different in Boston when I'm going.

00:54:02.000 | So I do have to pack clothing,

00:54:03.920 | but everything else I have and I need on a trip is already in my suitcases.

00:54:07.440 | I never say, "Oh, did I forget my toothbrush?"

00:54:09.440 | 0% chance because it's already in there.

00:54:11.120 | On top of that, if you do, something happens.

00:54:13.360 | Let's say your razor runs out of...

00:54:15.200 | The blades go bad or something.

00:54:16.320 | You need a...

00:54:16.880 | "I don't have a backup razor."

00:54:17.840 | Yeah, you do. It's in your travel bag, right?

00:54:19.440 | So you already have... It's like redundancy.

00:54:21.200 | I think thinking more about redundancy is really important

00:54:24.080 | because it just reduces your risk of like,

00:54:25.920 | "I used to forget. Oh, God. I forgot my razor.

00:54:27.920 | Oh, I forgot my deodorant. I forgot this or that."

00:54:30.240 | Never. I've never forgotten a thing since.

00:54:31.920 | So pack, double pack.

00:54:33.040 | You're saying, "I have to buy everything twice."

00:54:34.320 | I'm telling you it's worth the cost to do it once

00:54:36.720 | and you'll never have to think about it again.

00:54:38.320 | So if I could, I would actually have a whole wardrobe ready to pack.

00:54:40.800 | But that's really hard to do

00:54:42.240 | and you're not gonna know where you're gonna go.

00:54:43.440 | So you can't do that.

00:54:44.320 | But I would say just have backups and travel.

00:54:46.400 | That's my other big hack I give out there.

00:54:48.640 | There's a company and I can't remember the name.

00:54:50.480 | And if I find it, I'll put it in the show notes.

00:54:52.400 | But that actually does this as a service where you send them clothes

00:54:56.080 | and you send them your dopp kit and everything with your toiletries

00:54:59.280 | and a suitcase.

00:55:01.280 | And then they inventory it online.

00:55:02.720 | And you're like, "I need this stuff. Ship my suitcase there."

00:55:06.240 | And you just show up and they ship you a suitcase with whatever clothes.

00:55:09.280 | You send it back.

00:55:10.160 | They wash the clothes and they put them back.

00:55:11.920 | This is the perfect hack.

00:55:13.040 | It's a combo of your two hacks.

00:55:15.040 | There's a company out there that will do all this for you.

00:55:17.440 | So you just have to buy a second wardrobe.

00:55:20.160 | But I'll put it in the show notes.

00:55:21.840 | I remember looking at it and thinking, "This was an awesome service,

00:55:24.240 | but it's too expensive."

00:55:25.200 | Yeah. And it depends how diversified your wardrobe is.

00:55:29.840 | I wear black neck t-shirts, most v-neck t-shirts a lot of the times.

00:55:33.600 | I could easily do that.

00:55:34.800 | I know there's a lot of people that would be like, "Oh, heck no."

00:55:36.880 | If my girlfriend had worn different dresses or something, there's no way.

00:55:41.040 | It would be really tough to do that.

00:55:42.480 | But I think I can see how it could work though. It's interesting.

00:55:45.120 | Awesome. Okay. I have one more hack.

00:55:47.120 | I know you didn't ask for this. I'm just going to throw it out there.

00:55:49.200 | The biggest hack I've ever done in my life,

00:55:51.120 | maybe the greatest decision of my life.

00:55:52.720 | So I applied to a very selective school.

00:55:54.720 | I got into Stanford.

00:55:56.160 | But at the time when I was applying,

00:55:58.240 | I eventually did all this analysis after the time.

00:56:00.000 | I didn't realize this. I applied early.

00:56:01.600 | So I'd apply early where if I got in early, I basically had to go.

00:56:04.240 | And so I couldn't apply anywhere else early.

00:56:07.760 | But I was looking at the statistics and the acceptance rate my year

00:56:11.520 | to get into Stanford was 10%. Very difficult.

00:56:13.760 | But early acceptance was 18%. It was double.

00:56:17.760 | Don't get me wrong. I'm not saying 10% is very hard.

00:56:21.520 | 18% is still hard, but it's not as hard.

00:56:23.760 | Today, those rates are half of that.

00:56:27.920 | If you want to get your kid into like a selective school,

00:56:29.920 | and there's like some sort of early program,

00:56:31.440 | I guarantee you the acceptance rate is higher.

00:56:33.680 | And there's no single thing you can do to double your kid's chances

00:56:37.360 | of getting to a selective university than by having them apply early.

00:56:40.560 | I don't care if they got a 2400. I don't care if they're valedictorian.

00:56:43.280 | I don't care. You can go across the board.

00:56:44.720 | There's not one single thing that's going to double their chances,

00:56:47.280 | but that's a hack that probably will.

00:56:49.440 | I bet if you look at the data now, it's still double.

00:56:51.440 | I think the last time I checked,

00:56:52.800 | like now the standard acceptance rate is like 5%.

00:56:54.960 | But if you apply early, it's 10.

00:56:56.480 | So it's like, I mean, it's like an arm.

00:56:59.280 | It's like the easiest arm out there.

00:57:00.400 | Of course, you can probably only do this to one school.

00:57:02.320 | But if you have like one of these schools, you're like, "Hey, I want to go there."

00:57:04.880 | Parents are spending all this money on all this stuff.

00:57:08.480 | It's like, have them apply early.

00:57:09.840 | That literally doubles their chance.

00:57:10.960 | It makes no sense to me why this isn't being talked about more.

00:57:13.360 | I wish I should have seen a bunch of articles on this.

00:57:15.360 | I have not seen it yet.

00:57:16.320 | So that's my biggest life hack for trying to get your kids into a selective school.

00:57:20.080 | So I hope that helps.

00:57:20.960 | I hope it holds true a decade or two from now when my kids are actually going to school.

00:57:26.240 | Everyone's short in college now.

00:57:27.440 | So who knows, right?

00:57:28.720 | Well, one more thing I always like to end on is to pick a city you love

00:57:32.480 | and just give some people some suggestions who are visiting from out of town.

00:57:35.920 | Places to eat, something to drink, something to do, anything in there.

00:57:39.840 | Yeah. So I'll give you some New York City stuff.

00:57:41.520 | I'm a big foodie.

00:57:42.240 | So I'm going to focus on that.

00:57:43.280 | You can look up what's in New York City museums, etc.

00:57:46.720 | I say find your interest and go after that.

00:57:48.640 | So big thing, food places, it really depends what you want exactly.

00:57:52.640 | But I recommend one of the biggest brands in New York City is called Quality.

00:57:56.560 | So Quality Eats, Quality Meats, Quality Bistro, Quality Italian.

00:57:59.920 | There's a bunch of different restaurants here.

00:58:01.760 | It's not like a chain like that, but it's like a restaurant group.

00:58:04.160 | I think they have really good food.

00:58:05.600 | It's more high-end, really fun.

00:58:07.760 | If you like sushi, Sushi Seki is good.

00:58:10.480 | If you want to do a Michelin star restaurant, my favorite is probably Momofuku Ko in the city.

00:58:15.840 | If you look that one up, Ko, KO, that's really awesome.

00:58:19.280 | But really, honestly, if you just have restaurant recommendations,

00:58:22.240 | just DM me on Twitter.

00:58:23.200 | I'll just give them to you.

00:58:24.000 | Just tell me what you're looking for price range.

00:58:25.600 | I'll just help you.

00:58:26.240 | I really don't care.

00:58:26.800 | I love doing this for people.

00:58:27.760 | It's just so awesome because I've been in the city a while.

00:58:29.920 | In terms of bars, if you want just my favorite cocktail bar, it's a place called Olly,

00:58:35.600 | just for the taste of the drinks.

00:58:37.360 | O-L-L-I-E.

00:58:38.480 | It's just...

00:58:39.120 | They are just so good.

00:58:40.160 | It's not like the flashiest place.

00:58:42.320 | It's in West Village, like in Manhattan.

00:58:44.480 | Not the flashiest place here, but the drinks are just incredible.

00:58:47.600 | If you want something that's more visually appealing and fun,

00:58:50.320 | there's a place called Time Bar.

00:58:51.600 | There's experiences you can get.

00:58:53.040 | It's like a seeded tasting type of thing.

00:58:54.640 | T-H-Y-M-E.

00:58:56.480 | So time, like the seasoning.

00:58:58.240 | That's a really cool place.

00:58:59.600 | And they have crazy...

00:59:00.800 | You'll be drinking out of what looks like an oyster shell.

00:59:04.160 | It's not...

00:59:04.640 | It's just a copper.

00:59:05.520 | It's porcelain.

00:59:06.160 | But it looks like an oyster shell and all these different things.

00:59:08.400 | You'll go smoke coming out of things.

00:59:10.080 | You have things and drinks hanging from the roof.

00:59:12.080 | You have to drink out.

00:59:12.800 | Just really weird stuff.

00:59:14.320 | So if you want to experience, that's probably a place I'd recommend.

00:59:18.080 | That's awesome.

00:59:19.040 | Where else can people find you in the book?

00:59:21.760 | So you can find me at my websites of dollarsanddata.com.

00:59:24.560 | I said Twitter @dollarsanddata.

00:59:26.480 | Book's going to be at Amazon, Barnes & Noble.

00:59:28.480 | Just search "Just Keep Buying".

00:59:29.760 | You can find it there.

00:59:30.560 | So hope you guys enjoy it if you read it.

00:59:32.320 | The book's fantastic.

00:59:34.160 | I read it.

00:59:34.960 | I love that half of the title...

00:59:36.640 | Half of the subtitles for every chapter is something contrarian to pull you in.

00:59:39.920 | Because I'm like, "Whoa, I don't know if I buy that."

00:59:42.240 | And then I kept reading.

00:59:43.120 | So thank you for writing that.

00:59:44.880 | And thank you for being here.

00:59:46.240 | Yeah. Appreciate it, Chris.

00:59:47.040 | Thanks for having me on.

00:59:48.320 | [Music]

Building Wealth: World-Class Principles with Nick Maggiulli | All The Hacks Podcast

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