(audience applauding) - So it's my great pleasure to, I should start by saying what an honor it is to have an opportunity to participate in this conference. I've long admired the Bogleheads. I know you mainly from the discussion board. I'm a dilettante there. I've not earned my stripes on Bogleheads discussion boards to be a regular contributor, but all the same, I've learned so much from all of you and it's an honor to be a part of this morning's proceedings and congratulations on what sounds like has been a very, very successful conference.

So I wanted to tell you a little bit about Nick. I think he probably doesn't need any introduction to many of you, very, very successful author, blogger, and operator in his own right. But all the same, it could be helpful to have a thumbnail. So I thought we would start with that and I'll bring Nick up and he and I'll have a chat for 30, 35 minutes and then we'll open things up to you all to make sure that you have an opportunity to ask questions of him, same way I do.

But for those of you who aren't familiar with Nick, Nick is Chief Operating Officer for Ritholes Wealth Management, which Nick, as you know, is a registered investment advisor, which he joined in 2018. He's also the author of a best-selling book. I think, Nick, you said was it 35,000 copies and counting, which is a very, very significant accomplishment and deservedly so, it's a fantastic book.

If you haven't read it, I should say, one that'll be a focus of our conversation in a moment. In addition to the book, Nick is the author of "Dollars and Data," which is a blog that explores the conversion of data in personal finance. He's a graduate of Stanford University with a degree in economics.

I'm very pleased to welcome him to the stage today. So, Nick, welcome. (audience applauding) - Okay, thank you, everyone, for having me. Thanks for your time, and Christine, thanks for the invite, appreciate that. - So I think we'll start at an obvious place, which is the book. Maybe you can, the title is "Just Keep Buying." Maybe you can talk about the origin story for that, because it's interesting.

- Yeah, so there's a YouTuber named Casey Neistat, and he used to vlog out of New York, and one day he uploaded this video called "Three Words That Got Me to Three Million Subscribers," and the three words were "Just Keep Uploading," and he had gotten this recommendation from another YouTuber and said just upload every day, vlog every day, and you'll be successful, and he is successful.

He now has 12 million subscribers. He's been on the Academy Awards, all sorts of stuff. Anyways, I had seen that video, and at the same time, right around that time, I had started blogging in early 2017. I was very new to it. I was running all this analysis on US stock market returns, and this is something that I learned at the time.

Many of you probably already know this, but it doesn't really matter when you buy, like regardless of valuations, starting valuation, P/E ratio, et cetera. All that matters is the holding period. Over a 30-year period, all the returns converge, regardless of the starting P/E, right? And so when I saw that, I said the real solution here to build wealth is just to keep buying over time, and that's kind of how it came about.

Fun little side fact, when I was coming up with the name for the book, a little context. So every chapter in the book, I basically answer a question. How much should you save? How much of your raise do you need to save? Lifestyle creep, all sorts of stuff like that.

But when I was coming up with the book title, my publisher was like, "Why don't we call it "A Data Scientist Answers the 15 Biggest Questions "in Finance?" (audience laughing) And I said, "That's the worst title I've ever heard," so we went with Just Keep Buying instead. (audience laughing) - So we're gonna talk some more about the book, particularly on the topics of saving and spending, but before we did that, I think we'd be remiss if we didn't spend a little bit of time talking about the markets, inflation.

And so at the time you published the book, inflation was relatively benign. Markets were flying high, risk was being rewarded. Different story this year, obviously. What would you say to those who might question whether they should just keep buying, given their recent experience in the market? - I mean, it's only been, what, 10 1/2 months into this from the highs, so if you're giving up hope at 10 1/2 months, then you're not truly a long-term investor.

I think I'm preaching to the choir in here. I mean, we've had decades where markets go nowhere. You can think of 2000, 2009, you can think of the 1970s, most of the 1930s, right? So if you're giving up hope after 10 1/2 months, then maybe you need to reassess your risk profile amongst other things.

But the joke I like to say, it's not my joke, I stole it from Rap Capital, but he says, yeah, the market's down, but the 100-year moving average is looking pretty good, and so that's what I, you actually look at the data, the 100-year real return in U.S. stocks, if you look at it through September, is 7.1% real.

That's like with dividends, that's like insane. And I don't expect that going forward. If I had to assume a real rate of return across global markets, I would say 4%. I hope we get that. We obviously can't know, but that's how I plan going forward. - You wrote a piece in which you examine market performance following drawdowns of different severity.

What did you find, and how does that apply to now? - Yeah, so when people like to talk about drawdowns, people like to say, okay, we're now in a dip of, let's say, right now the market's down 24%. The question is, are future returns higher over the next one year, the next three years, the next five years, given, conditional on being in a drawdown of some amount?

And the answer is generally no. Once you're in a 20% drawdown or a 30% drawdown, you go back to 1926, it doesn't really, at least in US stocks, it doesn't really make a difference. You're saying, oh, I'm down 20%. The one-year returns don't really change. You're down 30% when your returns don't really change.

However, once you're down 40% or more, so the very extreme drawdowns, then the returns start to shoot up. So what's the logic behind that? Why does it not make a difference? Because when you're down 20%, you could go down another 20%, and then another 20%, right? So you don't know what's to come.

So when you're down like a little bit, there can be more pain ahead, but once you're down a lot, once you're down 40, 50%, most of the pain, most of the time has already happened, right, and so that's just what we have in US stocks. If we look in world stocks, it's a little bit different, so, and the world data only goes back to like 1970, MSCI World, ex-US, and so from 1970 through now, roughly there is a little bit of a benefit once there's a dip, so like buying the dip or having, putting more in once the market declines by 30% or more, generally there's some benefit there, but where we are now, I would say we're going down 24%, there's no evidence that necessarily the pain's over yet, so I wouldn't say, oh my gosh, back up the truck and buy everything, because we don't know that yet.

Now if the market was down 50%, I would be making a very different argument, so I think that's the context to think about drawdowns, and so I don't really get excited about buying until there's a very large drawdown. So I think the last time I even got excited at all was March 23rd, 2020, 'cause we were down 33%, which was like the most I've seen in my investing career, so.

- You also wrote a piece last year in which you tried to answer the question of how to invest when inflation is high. Can you talk about what you found and maybe also update us on your thinking on that topic, if it's changed any since? - Yeah, so if you look at, since the mid-1970s, the asset class, the best performing asset classes in terms of real return, the top three are U.S.

stocks, U.S. REIT, international stocks. Like this is just broad asset classes that most of us can buy. We're not talking private equity and things where I can't really get into for retail investors. So those are the top three going back to like the mid-1970s. If you actually then subset to the periods when inflation exceeds 4%, so that's not high, but it's higher than most of history, so you subset to those, the top three asset classes are U.S.

REITs, international stocks, U.S. stocks, the same set of assets. And so my takeaway from this is like owning income-producing risk assets like global stocks, real estate, other types of income-producing assets is the way to go regardless of the inflationary environment because yes, there's inflation that can happen, but it's really tough to know when to get in and out of those strategies.

Like if we're thinking back like 1973, U.S. market was down I think 21% in real terms. The year after that, it was down 34%. So we basically got cut in half within two years. And right now, I think in real terms, well, we just had 8% print and we're down 24.

So we're down about 32% real terms in the last year. So that's almost like our 1974 again, right? If you're thinking about the current environment. So that doesn't mean the pain's over or anything, but just thinking about that, like what happened in 1975, there was a 28% real return on the upside.

So I'm not saying that's gonna happen now, but once we get through that, the real returns start to happen later. So. - So at this point, I was gonna turn and talk a little bit about saving and spending. In the book you state, saving is for the poor, investing is for the rich, and you provide a framework for determining where you sit on that saving investing spectrum.

Can you walk through that for the audience? - Yeah, so I think the best way to do this is with the story 'cause it'll make more sense that way. So when I was 23 years old and I was living in San Francisco, I just graduated, got my first job.

I'd saved about $1,000 within a few months. And I'm a true bogal head even from back in the day before I even knew what the bogal heads were. I had spreadsheets, I was projecting my net worth, I was over analyzing my asset allocation. I had $1,000 to my name, even with a 10% return, which I, you know, let's assume 10% to make the math easy.

That's $100. At the same time, and I was making all these spreadsheets, I was going out with my friends, going to dinner, buying rounds of shots, getting my Uber home. Like I would blow my entire investment return in one night. And I did it multiple times throughout that year.

So when I say savings for the poor, investing for the rich, what I'm saying is like, it didn't really matter what I did with my investments then. I'm not saying you shouldn't invest when you don't have a lot of assets. That's never my, I would never say that to anybody.

I'm just saying it doesn't really matter. Tax loss harvesting doesn't matter when you have $1,000. You know, your asset allocation doesn't matter. Your rebalancing frequency doesn't matter. Now, most of the people in this room have been accumulating for some time, so it does matter. And so the question is, when does it start to matter more and how do you think about it?

And so I have a framework I use called the Save-Invest Continuum. And basically, every person in this room is on this continuum and you can figure out where you are just from two numbers in your life. First number is, how much can you save in the next year? Whatever that is.

Maybe you can save 10,000, maybe you can save 100, maybe you can save a million. Whatever, that's your number. This isn't a contest, by the way, so just privately keep these numbers. The second number is how much can your investment portfolio earn you in the next year? So assume maybe 5%, 10% return, whatever.

Just take something, just an average return, right? So let's say you have $100,000, 10% return, that's 10 grand, right? So you have your first number, you have your second number. The question is, which number is bigger? And the bigger number is where you should spend more of your focus.

Now obviously, if they're both similar, then you need to care about both. So let me give you the example. When I was 23, I probably could have saved five, 10 grand in a year. My investments would return me $100, right? So you see the difference. When I was 23, I should have been focusing on my income, raising my income, saving that money to get the other number higher over time.

Now think of someone who's retired. They can't save anything. All of their focus is on their investments. It's about tax loss harvesting. It's about all the little, tiny details. And so when you think about that framework, you can use that throughout your life. And so for most young people, they're gonna be focusing on income.

And I say, don't really worry about your investments. But as you get older and as you start to accumulate more wealth, you need to really focus on the investments. And that's what I think the bulkheads do because you guys have been accumulating for so long at this point. Which is also why it's funny we talk about this breakup, and this is exactly how the conference is broken up.

Like we had the accumulator room, and then we had the retirement room, 'cause there are different focuses, right? And we talked about saving money in there. I think, was it Chris, is that your name? Yeah, Chris had a great panel in there where he's talking about FIRE, and he was talking about spending money and income and all that, and that's for accumulators.

Whereas in here, we're talking about retirement and a lot of little tax strategies and things like that. So I think that's probably the defining idea of the book and how the whole book's even laid out. - In the book, you also talk about what you call the biggest lie in personal finance, which is the notion that people can be rich if they cut spending.

Why do you think that's a big lie, and what should people focus on instead? - So I've just looked at the data pretty religiously on this, and there's a great paper called "Do the Rich Save More?" And they basically show that the highest correlation with savings rate is income, and it seems pretty obvious to me.

Like, okay, obviously you have more income, you have more savings rate. Now, of course, it's very easy to say, well, I know this person that has a high income and they don't save a lot, and it's easy to find anecdotes. And anecdotes are fine, but over on average, that's not true, right?

If you look at between that piece of that paper they put out and then there's a guy named Emmanuel Saez and Gabriel Zuckman, they do a lot of great stuff on inequality and wealth inequality. They find that the higher your wealth is, the higher your savings rate. And this has been true since 1910.

They have data going all the way back to 1910. They find higher savings rate is correlated with higher wealth. Besides the 1930s, Great Depression, apparently it's really tough to save money, so besides then. But yeah, I just think the data's pretty clear on that. And I'm not saying you can't cut spending to save money and to build your wealth.

It's just a short-term solution. I think we need to be honest about this and we need to talk about income and how do we get people's incomes higher and how can individuals increase their income. I think that's the main takeaway. - Can you talk about the 2X rule and also whether splurging, the 2X rule is one of the concepts, constructs that Nick writes about in the book, and also whether splurging should be thought of differently amid sharply rising prices or if the same basic framework applies irrespective of where inflation is.

- Yeah, so I think there's a lot. I mean, a lot of people can't save money, but for those that can, I think there's a lot of spending guilt. I think most people in this room are probably very good at saving and maybe we're not. Because we're so good at one side to then flip in retirement and go to spend a lot of money, it's very difficult.

So I'm trying to come up with ways to get people to spend their money without feeling guilty about it. And so if you're gonna splurge on something and for every person, a splurge is defined differently, I just said, if you're gonna spend $500 on a nice dinner, save another 500 and invest that in income producing assets, S&P 500, whatever, or donate that to a good cause.

There's different ways. It's just tricks to try and get over the spending guilt. If you don't have spending guilt, don't worry about it. In terms of how do I feel differently now with rising prices? Well, if inflation's going up, that means an old splurge of $300, maybe now a splurge is even cheaper now than it used to be relatively, right?

So now it's like, oh, I used to just go, I'd say we'd go to the opera and it was 300 bucks I'd spend now, it costs $500 or whatever. And so I think that's price levels change, your level of splurge is gonna change, so. - In the book, you also talk about the interplay between human capital and financial capital and the role each plays in amassing wealth and enjoying a secure retirement.

Do you think the personal and professional disruption of the pandemic raises questions about how reliably we can estimate our future capacity to earn and how we'd estimate human capital? - Yeah, I think this is a really tough question because we're all planners. I mean, this is what you're all planning for our financial futures.

We're planning based on certain assumptions about our income and all these things, but stuff happens where we can't predict. And unfortunately, the pandemic's one of those examples where if you were in a particular industry, you could have gotten hit very badly. I was actually talking to Jim here about, he had a conference, the White Coat Investor Conference, and that same week when they shut down the MBA and everything, he had a conference where a bunch of positions were coming and that he just got completely unlucky with that.

And that's just, if he said he had it the week before, it would have been perfect. If it was a week later, he could have canceled everything. That's a great example of something you cannot control. And so unfortunately, it's really tough to predict future human capital, future market conditions.

At the same time, though, I think there's always a market opportunity. There's always opportunities for people, even when things look bad, you just have to really kind of try and figure out what they are. And so it can be tough, but you know, I don't really have a great answer.

That's my best take on it. - No, I think that's really helpful, actually. I do wanna touch on personal finance. We're gonna, I think, devote more of the morning to personal finance as a topic. You write about it in the book quite compellingly. Your book, it's not pro-debt, but it certainly isn't a polemic against borrowing to do things like reduce risk or attempt to amp up returns.

Now that interest rates have jumped, would you caution more strongly against taking out debt, even in the circumstances that you walk through in the book where you think a little bit could be acceptable and manageable? - This is always a marginal decision. It's gonna be different for every person in this room.

So like, whether it makes sense to take out debt or not, I think it's a very personal decision. So I don't really have a great answer for that either, but I think at the end of the day, yeah, you just have to figure out, it's always relative to something, right?

'Cause everyone's like, oh, should I buy or rent? Well, it's relative to what's the rental rate, what's the mortgage rate. All these things are relative to each other, and that system's always changing, right? So for us to say you should always buy or you should always rent, it's not really being intellectually honest how conditions are always changing.

And so I just want us to be more open to that idea. - What's another piece of received personal finance wisdom that you think is off base? - Saving up cash to buy the dip. I think that is the worst thing you can do. I think there's a lot of people that, oh, I'm gonna hold a lot of cash and wait for the next big dip.

And the issue with that is it only works if you know a big dip's coming, and it's gotta be a pretty big dip. A smaller dip's not gonna really be profitable, so it's really tough to know that in advance, and I know it's very popular in the culture. I don't think it's that popular with the vocal heads, so you guys are like, oh, I'm preaching to the choir here, but I just think it's very misguided and people shouldn't be holding a ton of cash in anticipation of a dip.

Now, the converse to that is if by chance we're in a dip and you happen to have cash, let's say you sold your business, that's just how it turned out, and you happen to have a bunch of cash and we happen to be in a dip, then it's great.

But you shouldn't be waiting on the sidelines for that type of stuff, 'cause generally the market does not reward that. - You also devote a section of the book to housing, and explore the buy versus rent question. How does the sharp rise in both home prices and mortgage rates change the equation for prospective home buyers?

It seems like affordability, for instance, is a real problem now. - Yeah, so I think most people use very simple heuristics with a lot of their financial life, and so I think the housing heuristic is what's my payment, you know, what's my mortgage payment gonna be? So if rates go up and prices have not changed, obviously payments will go up, all else equal.

So I think I read somewhere that for payments to equilibrate with what they were a year ago, prices would have to drop like 40% or something, which is a large amount, and so I don't think they will drop that much. Maybe they will drop. I don't know how much, obviously, is the question.

So if you're really just anchoring on payments, which is what most people do, then yes, it is gonna be difficult right now for people. - Yeah, a couple of good follows. I don't know if you follow them too on housing right now. Bill McBride at Calculated Risk, and Colin Roach for What It's Worth.

They're both in, I think, probably, I suspect, in both our Twitter feeds, but they do great work on housing, if that's an area that you're keenly interested in for what it's worth. Sticking with housing for a minute, first-time homebuyers, do you think it's wise for them to hold off now, and if so, what should they be monitoring, engaging, when the time's right to buy their first home?

- I think this is more of a personal decision than a financial decision. Of course, it is a financial decision for most people. It's gonna be the biggest financial decision you ever make, but how long can you hold off? Could rates go higher? Yes. Could they come down? Yes.

It's really tough to know what's gonna happen, and you're basically asking me to predict the future, which I obviously cannot do. So I think, for the most part, I would say, if it's the right time for you to buy, even though the market rates are high, so your payment's probably gonna be higher, you may have to downsize a little, but if you think it's the time for you to have a home, then go for it.

- I wanted to shift and talk again about investing, if we can. One of the arguments you make for investing is that it promotes saving for your future self. I think that argument builds on research that folks like Hal Hirschfield have done in this area. Talk about what that research found and why empathizing with one's future self can induce one to invest.

- Yeah, so they did these experiments where they basically, I don't know if you guys remember this FaceApp thing that was going around. This is kind of where you took a picture of yourself, and you can see yourself as an old person, or as a woman, or whatever, if you're a man, and vice versa, right?

So it was very interesting to see that. But they did this before FaceApp was a thing, and they basically took yourself, and they aged you to be older, and they said, and after people that saw these photo-realistic, older versions of themselves, they were more likely to save more and increase their retirement contributions afterwards, which is kind of interesting.

So just from that little thing. And they've done other studies where they ask people, what are you saving for? And they find that the only real saving motive, whether you're saving for an emergency, saving for your kid's education, vacation, marriage, whatever, the only one that really causes people to save and can save consistently is saving for yourself.

So when it comes to saving money, be selfish is what I say. So, and I think between that research and the other surveys they've done, I don't know how great, perfect they are, but I feel like it's a pretty good way to go with it. - And if you're interested in that topic, I'll put in a little selfish plug for our podcast.

We did have Hal Hirschfeld on "The Long View." We spoke to him, maybe it was earlier. Yeah, it was not too long ago. It's real interesting research that he's done and Nick does an outstanding job of walking through it in the context of the book. I maybe wanted to sort of couch this in the experience that you're having.

You know, you're at an RIA, you're dealing with clients, they're being confronted, not only by a market downturn, but synchronous declines across asset classes, except for things like maybe commodities related. And so what are those conversations sound like right now when you have clients that are coming to you and questioning the virtues of diversification, questioning the benefits that diversification might confer to them in light of the experience that they've been having recently, beyond sort of the obvious, which is, well, like you said earlier, it's only a year, you know, your time horizon is much longer than that.

What else, what else has been mentioned in talking to them about diversification and how to approach that? - So I don't talk to clients because I would say it's only been 10 months. Why are you like freaking out? So there's a reason I'm in the back office, if I'm being honest.

So, but I think in more seriously though, like we are talking about these things. We're talking about, you know, we have certain strategies. I'm not trying to plug the firm, but we have certain strategies and things we use to kind of do risk off and trend following and stuff like that when necessary.

And so I do think it's about focusing on like the long-term plan. I think Dan Egan said something very interesting yesterday, which is kind of also how we like to think long-term. If you think about, you know, every dollar that you have for retirement, that's eventually gonna be converted into some sort of income measure when you're retired, right?

So let's just use a rough metric. For every $100, you basically need 30,000. You know, that's like rough 4% rule, right? $100 a month, you need 30,000 in capital. So if your retirement account right now is down, let's say 90,000, what that equilibrates to in retirement is you just lost $300 a month for the rest of your retirement all else equal, assuming, you know, the market would just stay like this forever.

So when you're thinking about that, you're like, okay, I didn't lose 90,000, I lost $300 a month for the rest of my life. And I'm not saying that's trivial, but it's just when you think of it that way, it's a little bit different. You can kind of adjust that way.

And most retirees, if you actually look at how they actually spend their money, they're not using the 4% rule. They just match to their income. They have five grand a month in income, they spend five grand a month at most, right? They don't say, oh, I have this much.

And most of them don't do this and say, oh, I have a million dollars, I'm gonna pull 40,000. No, they don't do that. They say, I have a million dollars. How much income do I have plus all security? And then they adjust that way. - Why don't we shift and we'll talk about retirement and taxes.

Recent retirees, as we all know, have been greeted by a painful market downturn and high inflation. What do you think they should be doing to ensure they don't outlive their assets? And conversely, what should they refrain from doing? - I mean, I think this is kind of a misnomer in the industry.

I think there's all this fear about people outliving assets, but I think it doesn't happen that often, if I'm being honest. Especially, as I said, once you look at how retirees actually spend their money and how people think about retirement. Once I said, people use simple heuristics. They use the payment on a mortgage, and in retirement, they use income.

So most people are not using the 4% rule. Of the people, so 40% of retirees don't have any savings, they're just using Social Security. But of the 60% that have savings, which is probably everybody in this room, they only, one in seven actually pulls down principal in a given year.

Six out of seven do not pull down principal. They just live off the investment income or even less than the investment income. Most people who get RMDs, the Required Minimum Distributions, they reinvest most of that money. I think there was a, I can't remember which panel it was yesterday, they said there was a Vanguard Payout Fund, which is like, hey, you have to spend this money and it pays out to you.

And most people would just take that money and reinvest it in the fund, and the fund manager was getting very frustrated. So I think the idea that people, I'm not saying people don't run out of assets, I think that would be very foolish, but I don't think it's as big of a problem as people think it is.

People just adjust and they just cut back. They're gonna tighten the belt and they're gonna say, hey, my income's down because the market's down, I'm just gonna cut back. Or inflation's up, I'm gonna cut back in these areas. And so people make do. I mean, for most, retirees are just living off Social Security, which on average is $1,500 a month.

So it's not a lot, but you have two people, maybe you have a spouse there, now you have three grand a month, assuming your mortgage is paid off, you can probably get by with that. - Yeah, some of the other retirement myth-busting that you do in the book, you mention, you think that probably people are overstating the risk that they'll outlive their retirement assets.

A couple of others that you mentioned are, they'll be worse off, and also that Social Security won't be there for them. You wanna talk about those other two categories and why you think those are myths that probably need to be dispelled? - Yeah, so I think Social Security's gonna be there.

Even if the fund runs out of money, just from people who are paying into the system, you know, younger accumulators, they'll be able to pay at least 70% of benefits to like, I don't know, 2070 or something. Of course, every year it changes. I think there's gonna probably be some sort of reduction in benefits, so they'll raise their retirement age or something.

But to think that when I hit retirement, it's gonna be $0 a month, I would be absolutely shocked by that. I don't think there's any evidence that's gonna happen. I do think they'll have to reduce benefits or do something with retirement age to kind of make it work, but I don't think this whole idea that it's just gonna run dry and there's no one's paying in, I think just doesn't make sense.

Now, in terms of some of the other things you said about people running out of money, I think one of my favorite studies that was done on this, Michael Kitsies, who many of you may know, wrote a post about, they were just using a 60/40 portfolio, 4% rule, and basically over 30 years, you're more likely to 4X your wealth than you are to go below your starting principle, right?

So if you have a million dollars and you're pulling, doing the 4% rule on a 60/40, historically, you would have had 4 million after 30 years, more likely to have 4 million than below a million, which goes to show most retirees, your wealth just keeps going up in retirement.

Of course, this year, that's not true, but generally, most of the time, if you retired in 2017, you've probably done pretty well for yourself, right? So I think that's the thing to kind of keep in mind here. And in terms of whether retired, future retirees are gonna be better off, this is a very interesting question.

I do think millennials have had it a little bit tougher than prior generations. I know this is not me just saying this, 'cause it's given I'm a millennial, but I mean, there have been differences in the housing market amongst other things. Things are more expensive. At the same time though, I think future retirees will be better off 'cause all this wealth has to be passed down somehow.

More importantly, I mean, I don't think wealth is the only metric to look at. I mean, the story I like to tell, so Cornelius Vanderbilt, right? Everyone knows who the Vanderbilts are. He was, in 1864, he was worth $40 million, which is a couple billion when you change for inflation and everything.

His favorite son, who's gonna take over his empire and everything, died of tuberculosis. 25% of people in Europe died of tuberculosis in the 1800s, right? The richest man in the world couldn't stop a disease that today, basically, like 500 to 1,000 people in the US die of. So we wanna talk about being better off.

I think stuff like that is completely, I think if you could, would anyone in here trade places with Cornelius Vanderbilt? I think almost no one would. Maybe someone would, but I think most people would not. And so I think that's something to keep in mind. I'm not saying that those advances will happen in the next 30 years in that way, but over the next, our grandchildren and great-grandchildren should have much better lives than we did, I think, on average.

- I'm gonna ask you about 401(k)s, which you write about in the book. You do warn about contributing too much to a 401(k), which is a somewhat controversial take, and I actually think there was a thread on Vogelheads about this at one point. Can you walk through your thought process on that?

- Sorry, I said get ready for this one. So I just wanted to start a discussion around this. I think saying you should never max out your 401(k) is a foolish thing to say, but I also think the opposite, you should always max out your 401(k) is also equally foolish.

And the reason I say that is because no one actually looks at what is the actual after-tax benefit of everything above the match, right? I think you should always get to the match, there's no debate there, it's free money. Everything above the match, no one's actually analyzed how much that after-tax benefit is, and then adjusting for the fees you have to pay in your 401(k).

So let's just walk through this very simply. I'm gonna use a Roth 401(k) because I only care about the avoiding capital gains. As you guys know, there's traditional 401(k) and there's Roth, and that difference is an income tax difference. I don't wanna look at that, so let's put that aside.

Let's say you've already paid your income tax, so now you're in a Roth 401(k) and you're comparing that to a brokerage account, that you have some discipline, you're not trading in and out every year, you just have some discipline in a taxable brokerage account. Okay, how big is the benefit of having the Roth against all those capital gains?

At a 15% capital gains rate over 30, 40 years, the average after-tax benefit is about 73 bps. Let's say 70 to 80 bps to make it easy, right? So if that's how much extra benefit you're getting in a 401(k), the question is, well, what about the fees? The average fee in a 401(k), and this is not even the fund fees, this is just the all-in fees, is about 40 bps.

So half of that's already gone just from the 401(k). So now you're getting only about 20 to 30 bps a year in extra after-tax benefit by maxing. And my question is, is it worth it for that extra 20 to 30 bps? And I know over a very long period of time that can add up, but is that worth the flexibility?

So I'm just running the numbers. I'm saying, hey, when you look at these numbers, it doesn't look like it's always worth it. And then that doesn't even include the people that have like a 401(k) fee that's like 1% or more. If your 401(k) fee's over a percent, all the after-tax benefit is gone, right?

So if you have a good 401(k), you're young, you're saving a lot, it's probably fine. But I kind of regret maxing for a few years because that money I could have had outside in a taxable brokerage account that I could have been using to maybe buy a house or afford a wedding or whatever it is, right?

And I think the flexibility and the optionality is more important than that 20 to 30 bps a year. And I just want us to kind of talk about that because every personal finance expert says max out your 401(k) and I'm one of the, I think there are others now, but I have not met many that don't say that.

- Yeah, another piece of conventional wisdom that you challenge in the book very thoughtfully at that is on asset location. You argue for putting growth assets in tax advantage accounts and low growth assets like bond funds in taxable accounts. Can you talk about why you hold that view, how you came to that conclusion?

- So historically, bond yields and obviously distributions were much higher than they are now, I mean, maybe not now now, but where they were when I was writing the book. And so as a result, most people would say, oh, you wanna shield that income from your bonds, you wanna put it in your qualified accounts and you wanna put your stocks, which don't have any payments, right, besides maybe a dividend once in a while, into your taxable accounts.

But the truth is you wanna have your highest growth assets in your non-taxable and your qualified accounts, right? Now that's if you're just trying to maximize every dollar you can. I personally don't do that. I think the way to go is to have every kind of account be like a carbon copy of each other.

So if I have a, I'm gonna make this very simple. I have a 60/40, I have a 60/40 in my taxable account, I have a 60/40 in my 401(k), I have a 60/40 everywhere else. It also makes it very easy to rebalance across accounts because I don't have to take, I can't get money out of my non-taxable and put it into my brokerage and vice versa.

So because of that, I just kind of have them be cookie cutters of each other. But in theory, if you're trying to maximize every dollar, you should put as much of your high growth assets into non-taxable accounts. And I think the person that did this best was Peter Thiel when he put his PayPal shares into a Roth IRA and it's now worth $5 billion, so.

But we all can't be so lucky. - We're gonna shift and talk about behavioral and maybe we'll get to trading. I think you've said that around 90% of your personal investments are in traditional asset classes like stocks and bonds and the remainder are in what you term non-income producing assets.

So it could be stuff like art, crypto and the like. How'd you arrive at that mix and do you view the 10% as a way of scratching an itch to play in more speculative fare without putting your financial future at risk? - Yeah, that's exactly what I would say.

Every person's gonna be different in terms of how much risk they wanna take in what I call non-income producing assets like gold, wine, art, et cetera. I just came up with, I say 85 to 90% of your assets should be in income producing, they have cash flows, there's something, I think there's some fundamental weight to cash flows and even though yes, people can bid up and down prices, there's still something there.

It's like a suitcase with $100,000 in it. People may not know exactly how much money's in the suitcase but they have an idea and so they will bid up and down the suitcase but there's still some sort of fundamental value in the suitcase and I think that's what cash flows represent in theory.

So that's why I'm a fan of income producing assets and why I recommend most people to, and I don't, I think most people in this audience would probably agree with that so I'm not worried about it. - In the book, you write that just keep buying is easier to follow today than at any point in history 'cause it's much easier to transact and you can diversify in a snap, to paraphrase.

The flip side is it's never been easier to sell and transact in general. How confident are you that the benefits conferred by easier purchase of assets exceeds the cost some incur in opportunity buying and selling as we saw them do, unfortunately, during some stages of the last few years?

- Yeah, so I think the benefits way outweigh the costs. I mean, I think Jason Zweig said something yesterday that because of technology, it's the best it's ever been for investors and I completely agree with that. Now, of course, does it make it easier to sell? Yes, but if you're disciplined, that shouldn't matter all that much.

I don't think a $15 trade cost is stopping, when the market's down and you're panicking, I don't think it's like, well, I would sell but that $15, if you just lost 10 grand, oh, I don't wanna spend that 15 bucks. I don't think that's enough of a barrier to stop people from selling personally but that's kind of how I look at it, so.

- I had a few more questions and then I think we'll throw it open to the audience for questions. Am I just gonna hand the mic to you and walk it around? Okay, sounds good, so if you do have sort of questions that you'd like to ask Nick, you'll have an opportunity in the next few minutes to do so.

But Nick, I did wanna ask you about something you touch on in the book, which is the inadequacy of your education on financial matters during your upbringing. Reflecting on that, what do you think is the best way to educate young people about finances? - I think it's a really difficult question but I think just exposing people to these things and kind of getting them out there, I think the Bogleheads does a great job at that and talking to people.

I know every one of you has networks, you can talk to younger people, people who don't know about this stuff and just knowing that, they'll say, "Hey, I know that person, maybe I should look into it "or maybe you recommend a book or whatever it is." It's stuff like that that kind of gets people interested and the only reason I even learned this stuff, I haven't been in the financial industry that long, I've been here for four years, but I've been writing for about six now and the only reason I know is 'cause I read William Bernstein and Jason Zweig and I wouldn't be here without them.

That's period, end of statement. If I wasn't reading Jason in the journal or wasn't reading Intelligent Asset Allocator, I wouldn't care about the data and all this stuff. So I think it's stuff like that that really can make an impact on people. You can change people's lives, I think, in a very big way.

I think last night we saw that with Taylor Latimore, he's like, "The house that Jack built, "there is something to that." And people, you don't realize the impact you have on people until it's already too late. - So one more before we turn it over to the audience for questions.

Maybe we'll leave the audience with a parting gift. Who's an under-the-radar writer or podcaster on personal finance or investing matters that you'd recommend reading or listening to? - So there's a woman named Katie, K-A-T-I-E. Her brand is Money With Katie and I'm not just gonna tell you go read her, but I'm gonna tell you why.

So this whole idea of thinking about every $100 a month in retirement, that's $30,000 you need in capital, that was her idea. And I took it from her and did not say that, but I would have told you guys. So it was her idea and it's really great. And it's a great way to think about, okay, so let's say you need four grand a month in retirement, you get 1,500 from Social Security, that's the average benefit.

That means you need 2,500 a month extra. Well, how much does that mean? If you're using 4% rule very simply, you do 30,000 times those $100 units, and that's $750,000. So you can now back out very easily how much you would need for your income. So I think it's a cool rule, it's very easy to think about.

And it's also, when you're thinking about your retirement, you're like, oh, I'm down, as I said, let's say you're down 30 grand, that means you're down $100 a month in retirement, although it's equal, right? If you're down 300 grand, that's $1,000 a month, right? So there's very easy ways to kind of think about that and how it easily translates into income.

And I think heuristics like that can be helpful. - That's great. So with that, why don't we go ahead and we'll open it up to questions from the audience. - Hi there. Just a little bit of helpful basics of investing. I wanted to discuss your maxing out your 401(k).

I think we have a difference of opinion here. But first thing is, you mentioned the word BIPs, BPS, to new investors. You're talking about the basis point, initialized BPS. That is 1/100 of 1%. So that's to investors, just to explain a little bit about that. But I didn't quite catch this, but you were, based on your assumptions, your comparison, you are comparing, you don't want to max out your 401(k) because you'd rather put it in taxable.

To me, and you said you had like a 20 or 30 BIPs difference, and you were ignoring, you used the word 401(k) because you wanted to ignore income tax. To me, this is a behavioral change because the reason you put money into a 401(k) is because you can't take it out until you hit 59 1/2.

If you do that trade now, while you're accumulating, there's that behavioral thing that says, oh, money's in taxable, I can use it to pay the bills. No, it's for saving for retirement. So I would disagree, or I'll make sure I, tell me if I'm misunderstanding anything. But I would absolutely max out the 401(k) because of the behavioral aspects.

And besides, you don't know your tax rate. I don't think you can ignore taxes. You can't predict that. So take the safe approach, conservative approach, and max it out. And another promo for the wiki, prioritizing investments is a very key page on how you should save for retirement. So that's a little bit different from what you're discussing, but say, use the wiki as prioritizing investments, and that will tell you how to save.

So that's what I wanted to say, just a difference, thanks. - Yeah, so I think the behavioral benefits are definitely there. I'm guessing, and I don't wanna, I don't actually have data on this, but I'm just guessing based on a lot of people I've talked to, so I will say this is anecdotal, but the people who are maxing their 401(k), I'm assuming most of those people are disciplined enough to, when they're saving in their brokerage account, they're not, it's like, I have a brokerage account, why haven't I drained all that?

It's because I put the money in there, and I don't use it for bills or groceries and things like that. I'm not saying that people don't do that. That does happen. So for some people, that is a feature, that's a benefit. So I'm not saying for everybody that's not true.

So if you're someone who thinks you might touch the money, then yes, max, I agree with that completely. But if you're someone who knows you're not gonna be touching that, then I would say, hey, you probably don't need to max. I think the optionality is worth more than that.

But yeah, you have to be disciplined, I agree. That is a condition I should have specified. - Yeah, so when are, could you list some situations where you would recommend that an investor adopt trend following instead of a buy and hold portfolio? And then what are some advantages and risks, and you can compare that to a buy and hold portfolio?

- I think trend's really tough. I think, I won't name names here, but one of the best trend followers in our industry's fund missed, sold in March 2020, and then bought back four months later after most of the rally happened. I think it's really tough to know this type of stuff.

So I'm gonna be honest with you, it's difficult. If you're going to do it, I think behaviorally, you have to make it a smaller portion of your portfolio, so not all of your assets, 'cause I think the whip sawing can really get you, and behaviorally, it's not great. But I think having some of your money risk off while markets are crashing gives you enough of a behavioral hedge to say, hey, at least I got 10, 20% of it out before all this happened.

So I don't recommend it for most of your portfolio. I think the swings are too violent, but I think having a smaller allocation to it can be helpful. How do you do it? There's a lot of ways, there's a lot of different arguments about which moving average you use and things like that, but most of the time it's just following price, and that tells you a lot.

- Thank you. - I actually had a different follow-up from when Lady Geek had about the maxing out 401(k). I think one of the most important considerations is that for most people, you're not stuck with the 401(k) forever. When you leave your employer, you can roll your 401(k) into an IRA, and at that point there's no extra cost, or if you retire on a lower tax bracket and it was a traditional 401(k) there's an extra benefit.

So I think that it is important to consider the cost, and it's something that sometimes does come up on the Bogleheads forum, but unless you really expect you're gonna be stuck with this employer for 20 years, which happens unfortunately to a lot of teachers in particular who have high-cost 403(b)s, you need to look at the cost of the 403(b) or 401(k) is only compounded according to how long you expect to stay in the job.

And so I think that's a better number to look at. - I agree completely. I just wanted to open the discussion because a lot of people don't even look at their 401(k) fees and if you're paying over 1%, you're losing that benefit. So it's really just about opening the discussion because if 10 out of 10 personal finance experts say max out your 401(k), there's a lot of people who are getting screwed over, unfortunately.

And that actually comes up on the forum. I have people who say I'm paying over 1% in this 401(k) and then I say, well, do you expect to leave this employer in five years? If so, you're losing 5% and it's probably worth losing 5% while if you're gonna be there for your whole career.

- You'd have to run the numbers on that. - Yeah, if you're gonna be there for your whole career and you're losing 30%, - No, I agree. - Then no, you don't wanna lose 30% of your, to that. - Thank you. - And a great job with the presentation and I enjoy your blog.

- Thank you. - One little thing that I wanna kinda just mention, you talked about like focusing on like the things that matter at the right time and I mostly agree with that, but there's like one little nuance that I think it's really worth pointing out 'cause I'm kind of an extreme example of that.

So my wife and I, we figured out how to save half of our income from basically day one and we doubled our income within a couple of years. So if you do that, you're gonna end up with a big balance really quickly, which is the good part of the advice.

We also were the extreme on the other side where we didn't know anything about investing. And so we ended up with this like six figure portfolio and actively managed funds with huge taxable gains. We had to figure out how to get rid of, and we had a, in a rollover account, we had a variable annuity, we had to figure out how to get rid of.

And so that can be really expensive and painful. So I think the beauty of the Bogleheads philosophy is like just not that you can focus on these big things early, and if you get those right, it can save you a lot of pain later. So I agree with you, I think 98% of the way there, but I think that little bit of nuance of getting those things right early too, because if you don't, you can find yourself in a lot of pain and it costs us a lot in opportunity costs to get there and then going forward, tens of thousands of dollars.

So it's really important to not totally ignore that either. And I think that's preaching to the choir here, but just as we try to educate people going forward, I think that's an important point and love to hear your thoughts. - No, I agree. I mean, of course I would say, buy low cost index funds or ETFs, right?

I'm never gonna stray from that. I've been a Boglehead. I used to be a Boglehead in the Boston chapter. And so I don't disagree with that at all. I would buy, of course, but there's so many people out there who spend so many hours analyzing their trading, this and that.

And it's like, okay, you made an extra $1,000, let's say you have a $10,000 portfolio and you had a 10% alpha. So you 10% more than what the market earned. You earned an extra $1,000, but you spend 10 hours a week doing that. So let's run the math on that.

$1,000, 10 hours a week. Let's say you took two weeks off for vacation. That's 50 weeks, 500 hours, $1,000, 500 hours. You made $2 an hour. You better go into McDonald's and saving that extra money. So you start running these things very quickly and you're like, oh, wow, that doesn't make any sense.

So I agree with you. Yes, you should have a low cost portfolio. I agree with all that stuff. Don't touch it. Just keep buying. That's the premise of the book. The same time though, it's like how much does that matter versus just that person raising their income, even working at McDonald's would have been better for that person than what they did.

Now, of course, if that person was managing a billion dollars, this is a very different story, but they're not. - Hey, Nick. Wondering, any advice on being a smart consumer of long-term capital market expectations? I see different models around. Some of them have mean reverting valuations. Some of them are simpler.

What works? - I think this is a tough question. Once again, it's like trying to predict the future and it's like, I just assume, and I think everyone should be conservative in their modeling. And so I try to assume a 4% real return going forward across a globally diversified income producing asset portfolio, that's what I assume.

And if you look at like the equity risk premiums, DFA has released some data on this across like most developed countries, it's like four to 5%. Obviously the US, South Africa, Australia, there are exceptions to this rule that are on the high end. And then there's exceptions on the low end, which is like Russia this year, Greece, right?

We can think about those, Japan a little bit, right? So I think for the most part, just try and find a good conservative estimate going forward. And I think 4% real is the way to use. Obviously everyone, we can differ on that and that's fine, but I just use that and I find it works well.

- Sorry, this is about the 401k, but I have two questions. I think what you said is partially true, but specifically for the Roth, there are ways and tricks to get out the money before you reach 59 1/2, like rolling over the Roth IRA, that's the five year rule, two five year rules, and you meet that, you wouldn't have this problem.

So it's partially correct. The traditional one I think is a bit tougher to pull out. There is one thing that you're missing though. The 401k has creditor protection and you don't have any creditor protection in taxable. And I think that is worth like the 20, 30 basis points. And I think we also have to assume that the person doing this is somewhat intelligent enough to have extra cash in taxable assets in cases of emergency.

So like the wedding that you need the money for shouldn't be a thing. Like this is something that you should be planning for. So just my comments. My other more important question is that I've noticed you have a 10% non-traditional assets where you put your fund money in, scratch your itch.

And I have something similar. And I've tried for over 15 years and I could never get any asset that would do well in practice. And I'm wondering if you have found anything that works well in practice. Or if not, maybe we can go through the list of stuff that has utterly failed in your experience.

- I mean, I've gotten lucky, I will say that. My most famous tweet, I think, besides I did this tweet about Leonardo DiCaprio and the women he dates and how old they are, but let's not get into that right now. But my most famous, no, it was actually went like 30 million impressions.

It was crazy. Anyways, I did not expect that. My most famous tweet before that was I said, I sold my Bitcoin, half my Bitcoin at $52,000. Ask me anything. And I was draped over the coals. Like how are you gonna tell your future grandchildren about this and like how disappointing they're gonna be and all this stuff.

So there are ways you can do it. You have to obviously get lucky. Like obviously I bought Bitcoin much cheaper and I sold half of it at 52K. And so it's one of those examples where it can happen. I think on net, I'm up, but wait, I also lost a bunch of, I lost 70% in a little bit of money, but in altcoins this year, and that was stupid.

But on net, I'm probably up a little, but I agree. It's probably not. I should have just bought the S&P 500. Every time I've regretted that, I should have just, like I should have just listened to myself. Why didn't I just, have I read my own book? I'm an idiot, right?

(audience laughing) - Thank you for being here, Nick. I've learned a lot from your writing over the last few years. And I just, you've been very kind to us saying, this audience probably already knows this. This audience probably already knows that. What is a mistake that you would be afraid that we would make?

The people in this room who are pretty knowledgeable, what's something you would be afraid of us overlooking? - Yeah, I think the, it's not an investment mistake. It's not a mistake with how much you're saving. It's probably your spending. I think a great book out there is "Die With Zero." I know that book has a lot of connotations and stuff out there with it.

I'm not saying people should die with zero, but I think that's a closer approximation to about how people spend money. I think over-accumulation is more of the problem, I'm guessing, in this room than anything else. And so I think most people have nothing to worry about in terms of financial things.

This is like the rock stars of the financial world, the people like, trust me, I'm a nerd. I've had spreadsheets, I do all this. I know people in here love spreadsheets, I just know it. I can feel the Excel energy in here. So I'm just saying, if I'm saying what's the thing in here, it's spending the money and figuring out how to feel comfortable spending the money and how you can live a life that you enjoy with doing that.

And so a lot of different discussions we can have on that, but I think that's the big thing I would say. - Thank you. (audience applauding) - Thank you, everyone. (audience applauding)