The Personal Finance Podcast - Should You Buy The Dip? (Just Keep Buying) with Nick Maggiulli

Starting point is 00:00:00 Local news is in decline across Canada, and this is bad news for all of us. With less local news, noise, rumors, and misinformation fill the void, and it gets harder to separate truth from fiction. That's why CBC News is putting more journalists in more places across Canada, reporting on the ground from where you live, telling the stories that matter to all of us, because local news is big news. Choose news, not noise.

Starting point is 00:00:27 CBC News. Okay, when I sell my business, I want the best tax and investment advice. I want to help my kids, and I want to give back to the community. Ooh, then it's the vacation of a lifetime. I wonder if my head of office has a forever setting. An IG Private Wealth advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center.

Starting point is 00:00:56 Find your advisor at IG Private Wealth.com. On this episode of the Personal Finance Podcast, we're going to be talking to Nick Majuli about why you need to just keep buying. What's up, everybody? Welcome to the Personal Finance Podcast. I'm your host, Andrew founder of MasterMoney.com. And today on the Personal Finance Podcast, we're going to be talking to Nick Majuli about why you need to just keep buying.

Starting point is 00:01:41 If you have any questions, hit me up on Instagram at Master Money Co. And follow us on Spotify, Apple Podcasts, or whatever podcast player, you love listening to this podcast. And if you want to help out the show, leave a five-star rating and review on Apple Podcasts or Spotify. And don't forget to check us out on YouTube as well at Master Money on YouTube. So today, we're going to be talking to Nick Majuli. Now, I've referenced Nick Majuli's work a number of times on his blog,

Starting point is 00:02:11 dollars and data. He has absolutely fantastic articles. about a bunch of various things, from the stock market, to investing, to how to save money, all of these different things. And Nick just wrote a book called Just Keep Buying. And this book is absolutely incredible. I'm going to be recommending this book for a very long time. And if you're new to personal finance, this is a book I definitely want you to check out because this covers everything from investing to saving, to how to manage money, to how to actually spend your money, which is a skill that you actually have to learn and how to invest your money. But what he does,

Starting point is 00:02:45 And the cool thing about this book is Nick backs it all up with data. So he has really cool stories in there, but he also backs up everything that he's talking about with real life data. And the data means everything when it comes to personal finance because you have to understand that, yes, personal finance can be personal. But at the same time, we have to look at the data to make sure that we're actually making the proper decisions. So today, we're going to be talking to Nick about should you focus on saving or increasing your income. We're going to be talking about the 2x rule when it comes to spending. how to invest your money in a recession and should you buy the dip. And we're going to be talking about a number of other topics as well.

Starting point is 00:03:20 So without further ado, let's welcome Nick to the Personal Finance Podcast. So Nick, welcome to the Personal Finance Podcast. Thank you for having me on, Andrew. Appreciate it. So today I want to talk about a number of things because you have a book called Just Keep Buying that's coming out. And I absolutely love the book. I think it's something I'm going to be recommending for a very long time because there's a ton of great content,

Starting point is 00:03:41 especially for people who are interested in personal. finance, which is obviously what we talk about all the time on this podcast. And in your book, you have a really cool outlook on savings, specifically the method where you save when you can. And there's a lot of problems with traditional savings advice that a lot of people have. And I've been guilty of it for a long time as well. I tell people to save a certain percentage of their income. So what are some of the problems with traditional savings advice that you see? I think the issue is that income isn't static, right? We don't just have like, oh, we're always going to get paid this amount for a lot of people. Yes, incomes can be static for certain periods of

Starting point is 00:04:12 time, but I think a lot of the savings advice probably came from a time when there was like, you know, single income earner in a household, maybe like, you know, husband worked, wife stayed home, right? It was pretty stable. There's stable pensions. Now it's not really like that. There's usually two income earners. There's more volatility in income.

Starting point is 00:04:27 There's not people doing side hustles. It's like a whole thing. Like people have so many different sources of income now. And it's much more normalized to like have other ways that people make money. That to say like, oh, you always have to save 20%. It's really tough, especially as life circumstances change. After having a child, for example, you may find it's much. more difficult to save 20% than, you know, beforehand.

Starting point is 00:04:46 Exactly. And that's what your book kind of talks about as well as savings becomes seasonal. So, for example, right now I have two kids that are under three. So my child care has gone up significantly. So the savings rate in terms of how much you can save is only finite. So that's something that I've seen as well. So how do you determine how much you can save? I mean, the simple way is just, you know, your income minus your expenses. That's your savings, right? So if you're bringing in, you know, 10 grand a month, let's say, or, you know, and you're spending five grand, you know, after tax, right, then your savings five grand. Very simple, right, take your income minus your expenses.

Starting point is 00:05:17 Very straightforward formula. And I think the question, right, is like, well, how do I save more? That's usually the next natural question. Well, how do you save? Well, how do you save more? Well, the question is you can either raise your income. You can lower your expenses, you're spending, or you can do a bit of both. And I think the data generally shows that those people that have higher incomes find it

Starting point is 00:05:34 easier to save than those with lower incomes. And then you're like, well, isn't that obvious, Nick? I'm with more income. But we always talk about, oh, people, there's lifestyle creep and people end up spending all the money they make. And there are people like that. But generally, people don't spend that much more as they make more income. They do spend a little bit more, but they don't spend their spending rises more slowly than their income. So that gap gets wider and that gap is your savings, basically.

Starting point is 00:05:56 So absolutely. And the data that you put in the book for those savings rate is really interesting. So would you say that the majority of people should focus on increasing their income over just their savings rate? Well, I think, I mean, by increasing your income, you should be able to increase your savings rate. It's not guaranteed, but obviously if you're increasing your income and you're not spending all of that increase, you should be able to increase your savings rate, right? Just by definition. So I think that's the way to do it because, I mean, the data I used in the book was from the Bureau of Labor Statistics. And it basically breaks it down by like, okay, there are these five, you know, groups of incomes, like the bottom 20%, the 20th to 40th percent out, et cetera, all the way to the top 20.

Starting point is 00:06:33 And it says like, okay, looking at these groups, how much are they spending on each category? And you find that the people in the bottom 20 percent, basically the necessities eat their entire paycheck. They don't have enough to make it. So that's people like making low income. That's like obviously includes students, people with no income as well. So it's not just like completely people low paying jobs. It's a mix of different households in there. But generally like the necessities eat their paycheck whole, right?

Starting point is 00:06:56 So they can't save. It's really impossible. There's not much to cut. And I even show numbers. Like, where are you going to cut? I say, where are you going to cut from here? And a lot of people are you going to read this and be like, yeah, I don't know I would cut exactly because you can't cut. So I think it's not great advice for them. I think the true

Starting point is 00:07:07 advice union says like, okay, well, how do you grow your income over time so that you don't have to worry about cutting as much? I think that's the key. Exactly. And I completely agree as well, because increasing your income, you can do that over time exponentially, whereas you have your necessities and that's what you have to have there and you can't really cut back from some of those necessities. So if someone wants to start to increase their income, what are some ways that they can actually go ahead and do that? So there's a couple different ways to do it. I think the simplest way is to like kind of sell your time or expertise. That's usually the starter way. Like, oh, I'm just going to, whatever that means. I mean, for some people, that means driving Uber. For some people, that means,

Starting point is 00:07:41 like, tutoring somebody, whatever. Like, there's certain things that you may have expertise in that you can sell. And so that's usually the easy way. And that's as a side hustle, by the way, right? Outside of, like, you know, your main job, we're going to get to out in a second. So that's one way. Kind of sell your expertise. You can think about, like, selling, you know, a skill or service, right? So that's where it's going to be linked to your time, but not necessarily if you get good enough of something. You're like, I'm just going to sell you the service. And if you get more. efficient at it, it's not really necessarily based on your time like it used to be. It's not like an hourly rate.

Starting point is 00:08:07 It's like, I create this thing for you. I do this thing for you, right? The next idea is to teach people things, you know, especially with a lot of stuff going online. There's like online learning. That's where you can scale. You can start, you know, spreading that time you spend on something and scale it to more people.

Starting point is 00:08:20 There's also like creating products, right? Create a product that people like, whether that's a physical product or a digital product now with places like Gumroad, you can sell digital products online straight to consumers. So that's another thing to do. And then lastly, the last is like climb the corporate. I know people, there's a lot of like this whole like what I call VC or entrepreneurship superiority complex where it's like, oh, everyone has to be their own boss and have their own

Starting point is 00:08:41 business. I don't think that's true. I think there's a lot of people that build wealth just by working for other people and there's nothing wrong with doing that. And most entrepreneurs, you actually look at the data. Most entrepreneurs are older, not just because like, A, they have more experience so they know how to start a business. Most people in their 22 don't know how to start a business. We're not the Mark Zuckerbergs of the world, right? So that's rare already. So by the time you get older, you're going to have more experience and you're going to have money to start a business. Usually it takes money or some resources, right? So most people are starting businesses, the average age of an entrepreneur is something like 40 or something.

Starting point is 00:09:09 They're much older. So I think this whole like, oh, I can't climb the corporate ladder. Like, no, you definitely can. Doesn't mean you have to do it forever. But, I mean, it's a very valid way to build wealth. And there's a lot of people that have done that. And so to downplay that, I think it's not fair. I completely agree.

Starting point is 00:09:21 And I think most people should start at the place they spend most of their time, which is learning to negotiate their salary and start at their job. And then over time, you can start those side hustles and things as well. Because having those both combined, you know, the side hustle will allow you that freedom later on over time if you build it up enough. But in addition, starting at your job really allows you to kind of do it where you focus most of your time. Yeah, I agree. So I want to shift this over slightly to you have a really cool rule about spending money. So you have a trick called the 2X rule that kind of removes guilt from spending. And I love that idea because a lot of people struggle with guilt when they start to learn how to spend their money. So can you explain the 2x rule and how it works? Yeah, the 2x rule is

Starting point is 00:09:57 very simple. And basically it's like if you're going to splurge on something, now what do you define as a splurge, every person's different. For one person, it might be spending $100, like on a nice, I don't know, I'm trying to, maybe you could go to a nice restaurant or something. I want to spend a hundred bucks to buy the special thing, whatever. For some person, it might be, you know, a nice set of shoes or a nice, I don't know, a car. It could be whatever size, whatever you consider a splurge. That's what a splurge is. As long as, if you feel that, like, I feel like I'm spending too much, that's a splurge. The 2x rule basically says, take that amount of money, whatever is, it's $100. Save 2x of that, so maybe $200. And with that other one,

Starting point is 00:10:32 you either invest it or you can donate it. There's different things you can do with it. So that's kind of the key, right? You save 200 bucks. A hundred goes to investing. A hundred used to buy the splurge purchase, right? And so therefore you kind of get rid of your guilt because not only are you spending on yourself, but then you're like, hey, I'm investing for my future or I'm donating to a good cause. So there's ways to kind of, you know, get over that mental guilt. And I think that's the way we can do it. Absolutely. And I love that tactic, especially if you feel guilty because you're at least putting extra dollars towards your freedom later on in life. So, and And one thing we talk about in this podcast all the time is lifestyle creep.

Starting point is 00:11:05 When your income creeps up, I believe you should enjoy some of that money over time. But the key here is be careful how much of it we spend. So you have a really great chapter in your book about lifestyle creep. So how much do you think that we should spend as our income increases? So how it works in the book, I assume you're kind of in a steady state of like, hey, I'm on a decent track to retirement. I'm saving enough, whatever. You're on some decent track, right? And then there's this, we'll call a positive shock as economists call it.

Starting point is 00:11:30 but that just means you got a bonus, you got to raise. You have no more money, right? And so a lot of personal finance experts say, no, don't let your lifestyle creep at all. Save 100% of it. And I'm saying generally for most people, if you look at the data on how we run a simulation of this, you only need to save about half of it. If you save half, you can let the other half kind of creep upward and you'll be fine. Why does that make sense?

Starting point is 00:11:49 Because generally, if you think about this, like if you're saving half, that other half is going to be spent. So now your lifetime spending has increased a little bit. So you have to probably save a little bit more to offset that. Right. And so I just ran a simulation that does it. And it's a very simple thing. And it also kind of matches the two X roll. It's like, oh, half's for me, half's for future me. It's the same thing when you're doing the two X roll. And that's just by chance I didn't like pick the numbers for that. That just kind of came out that way when I ran the lifestyle creep simulation. But yeah, I think

Starting point is 00:12:16 that's the thing to think about. And the other thing, which is kind of more interesting in that chapter is those people who are high savers who save a very high amount of their income, when they get a raise or a bonus, they have to even save even more of that to like stay on track. And you're saying, well, why does that make sense? Because when you're a high saver, you're spending very little relative to your savings, right? But when you get a big raise or something, now you're spending a lot more. It's really the effect on spending that messes with you. So you have to think about your spending and how that goes out into like the rest of your life, right? So if you even some simple habit, like, you know what, I'm going to buy a latte every day. That's fine

Starting point is 00:12:48 and all. But if you think, if you do that every day over the course of your life, that could be a lot of money. So you have to think about how you're spending changes and how that's going to affect your entire life. So absolutely. I agree. I think that was so interesting through that chapter I think it's something that a lot of people should be thinking through as they get those raises as well. So when it comes to debt, you talk about something where credit card debt is not always bad. And when you talk about that, I got my attention right away. So why is credit card debt not always bad? So it's generally bad, but it's not always bad. And why it's not always bad is because I think there are certain people in certain circumstances where we're told never use a credit card, never have this for anything. And I think there are certain circumstances where if you need it, it could be useful.

Starting point is 00:13:27 And so in the empirical literature of, you know, talking about this stuff, they call these people borrower savers. Now, what's a borrower saver? That's someone, let's say you have $1,000 in your checking account, but you have a $500 in credit card debt. Now, you're rationing. Well, how would I be paying 20% on this $500 credit card debt, you know, 20% a year, APR or whatever?

Starting point is 00:13:44 When I have $1,000, I should just pay off the debt and just have $500 in cash, right? That just like makes more sense, right? Well, the issue is not necessarily about that. It's more about the liquidity. What if I have like a $700 expense next week, right? I can't use the, maybe can't use the credit card. Maybe I can't do something else to get that money back. So having the cash could be very useful.

Starting point is 00:14:01 So those people who are called borrower savers, they use credit card debt and they're using it because they don't have a lot of money. So in certain circumstances, this type of debt can be useful. Now, I'm not, I want those people to get out of that situation, obviously. I'm not saying, oh, I have a ton of income. I have a ton of savings. Let's use credit card. Now, no, that's not what I'm saying.

Starting point is 00:14:18 It's just in certain circumstances, it can be useful. Obviously, that's an exception. Generally, credit card debt is not good for you because of the high interest rates. but there are cases where you can use debt if you're in a jam and like, hey, if you have to do it, it's probably more important to do that instead of beating yourself up about not using your credit card and then possibly being an even worse situation, you know, in that case. Absolutely. I completely agree as well.

Starting point is 00:14:38 And as we're looking at debt here, I want to also talk about student loan debt. And you have a lot of really good data in the book about student loan debt and the return on college and things like that. So when does it make sense for someone to take out student loan debt? Yeah. So I think you have to think about, I mean, I, I'm just going to tell you a theoretical framework. I'm not going to spit out the equation here. In there, there's an equation I give to how you can roughly value this.

Starting point is 00:15:01 But basically, it's like, okay, let's say you didn't go to college, right? Try and imagine what your career might be and not just exact career, but just how much you might make, right? I don't know. If you don't have a good comparable, try and find something like assume you're the median person. Okay, given this, my age, all these types of interests, how much would I be making over the course of my life, right?

Starting point is 00:15:17 You have some amount, right? Let's say it's 50,000 a year. Let's say, okay, times 40 years. That's, I think, what, $200,000 when I'm doing that correctly, right? I'm sorry, $2 million. I apologize. So your total lifetime earnings is $2 million, right? But now, let's say I go to college.

Starting point is 00:15:31 What's my lifetime earnings going to be? Let's say you double that to $4 million, right? So now that $2 million over the lifetime is $4 million. Okay, we've doubled that. So that's like a $2 million. Does that mean I'm willing to pay $2 million for college? No, not at all, right? You have to discount all that money back.

Starting point is 00:15:45 You have to assume you have to give up the amount of time you were in school, right? So there's a formula I use for this. But basically it's just like if it's going to increase your earnings enough, to offset the cost of the debt, then you should probably do it. Now, getting the particulars matter, devil's in the details here, but I have a formula in there, which basically says, like, take about, you know, how much you're going to lose by going to college and then how much it's going to cost you out of pocket. The actual out of pocket costs, not like the estimated cost, because, you know, all these

Starting point is 00:16:09 colleges say, oh, it's 50 grand a year to go here, but how many people are actually paying 50 grand. It's very small. You know, there's like discounts and scholarships. There's a lot of stuff they give out, so you're not actually paying the full cost for some of these things. So know the actual costs, kind of look at the prices and everything, and you have to figure out that difference, you know, and that's, if it's worth it, if it's more than it, then it's

Starting point is 00:16:25 probably worth it to do. And obviously, I think the other thing, too, is, you know, it's your life. And if you really want to get an education and do that, like, I think you need to do that because, you know, it's going to be something that you're going to be able to benefit from in the future, right? So it's not always dollars and cents, but, you know, for some people, it might be. So just think about that, you know, before you go and, you know, get a degree in underwater basket weaving. It's the joke that's said, you know, out there. So exactly. And I get that question all the time from a lot of students, even in high school, deciding if they want to go to college, and I think they should run that formula, especially if they're thinking through that

Starting point is 00:16:56 process, because I think that's extremely valuable. So that is something that I think that they could definitely utilize for sure. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy, clothes don't fit anymore, and routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in actually matches the life that we're building. And that's where PolicyGenius comes in. PolicyGenius is an insurance company.

Starting point is 00:17:27 They're an online marketplace that helps you compare life insurance quotes from some of the top insurers in America, all in one place for free. And their licensed team works for you, not the insurance companies. So they help you find the right coverage for your situation, without all the guesswork. And they walk you through everything. Answer your questions, handle the paperwork,

Starting point is 00:17:46 and help you get the coverage that actually fits your life today. and where it's going. So protect your family with a policy that grows with your life. With PolicyGenius, you can see if you can find 20-year life insurance policies, starting at just $276 a year for $1 million of coverage. Head to PolicyGenius.com to compare life insurance quotes from top companies and see how much you can save. That's PolicyGenius.com.

Starting point is 00:18:11 I remember when I needed to hire someone fast, but finding the right person quickly felt impossible. And if you've ever been there, you know how stressful this can be. That's where Indeed comes in. When it comes to hiring, Indeed is all you need. Instead of struggling to get your job post noticed, Indeed's sponsor jobs help you stand out and hire faster. Your post jumps up to the top of the page, making sure it reaches the right candidates. And it makes a huge difference. Sponsored jobs on Indeed get 45% more applications than non-sponsored ones. And there's no need to wait any longer. Speed up your hiring right now with Indeed. And listeners of this show

Starting point is 00:18:46 We'll get a $75 sponsored job credit to get your jobs more visibility at Indeed.com slash personal finance. Just go to Indeed.com slash personal finance right now and support our show by saying you heard about Indeed on this podcast. Indeed.com slash personal finance. Terms and conditions apply.

Starting point is 00:19:05 Hiring, Indeed is all you need. So I want to shift it to investing because I love your writing on investing, especially from your blog reading it for years and years and you have some of the best investing data that I've ever read. So when it comes to investing, why is it so important to start as early as possible? So I think there's two main reasons. The first one, which I'm assuming most of your audience, has probably heard already, which is about compounding, right?

Starting point is 00:19:27 People have heard, you know, you've heard maybe the analogy of, like, the chessboard with the rice. You put one grain of rice on the first piece of the chess board, and then it doubles, and there's two grains of rice and then four. And then by the end of the chess board, it's like more rice than it's ever been consumed in human history or something. Like, some really outrageous number, right? Something like that.

Starting point is 00:19:43 I can't remember what the exact analogy is. So, compounding matters, right? So when you start earlier, you have more time for that money to compound. So, for example, let's say you were to save the same amount of money every year for 40 years. And let's say you got a 7% return. So let's say you saved, I'm just going to throw a number out there, $10,000 a year for 40 years. By the end of that 40 years, the final amount of money you had, half of that, half of that final value came from the first 10 years of savings. The other half comes from the last 30 years.

Starting point is 00:20:09 And you're like, what? Like, how is it the first 10 years has the same final output as the, you know, the next 30 years, right? So you're like, what? That makes no sense. Of course I'm going to save earlier. When you just look at the math, it's very obvious that you should be saving earlier. So that's the first one. It's just the compounding effect. The second one is behavioral. And I think it's just because, like, saving money is hard. Compounding money is easy. Like, I don't have to do anything for my stocks to keep growing. I just sit there and they just keep growing over time. As long as I don't sell, I'm not saying it's easy to hold forever through market crashes.

Starting point is 00:20:36 That's not necessarily easy. But it's easier than like having to go out, work, save money, not, you know, have purchasing gill. Oh, I have to do all this. You know, saving money. You know, saving money is much more difficult. There's a lot more decisions along the way versus compounding money. Once it's invested, you kind of can just set it and forget it. And assuming the stock market's going to grow wealth like it has historically over a long time period, you know, 34 year period, you're probably going to build your wealth just from doing that. So that's the second reason why you should start earlier because it's just if you bake all that in

Starting point is 00:21:02 early, you're not going to have to do all that work for the next 30 or as much work in the next 30 years as you did in the first 10. Exactly. We've done episodes like how long it'll take you to become a millionaire. if you start saving by age. And we've done it where, you know, at age 20, you have to save $97 a month become a millionaire by 65. But by mid-20s and 30s, you have to save a couple hundred dollars. And by the 40s, you're in the 1,000.

Starting point is 00:21:23 So it's just so much easier if you start earlier. It's so much easier on your life as well. So another episode that we've done is lump sum investing versus dollar cost averaging. And I referenced your article on that in part of that episode as well, because I think you have some amazing data on that. So when investors are just starting out or they get a large lump sum, should they invest it all at once or should they dollar cost average it? So I have a little bit of beef to pick with the term dollar cost averaging.

Starting point is 00:21:49 I actually love the term dollar cost averaging, but there's technically two definitions. I just want to say this briefly because when people say the term and look, we read the book, I use dollar cost averaging in what I think is the correct definition versus the incorrect. So the first term of dollar cost averaging, which has come up by Benjamin Graham was like, if you're buying over time, you're just buying every time you get paylist in your 401k, you're buying every, But you're investing the money as soon as you get it. That's the point. That's what dollar cost averaging is, the traditional definition.

Starting point is 00:22:15 What you're talking about right now is you have a bunch of money. Let's say you have $100,000 like you sold a business, you got an inheritance. And the question is, do you put that money in right away or do you slowly kind of get into the market? You wait in. You average what I call in the book averaging in. I didn't want to use the term dollar cost averaging because it's so confusing. So I'm saying averaging in. So you're asking, should I buy now or should I average in?

Starting point is 00:22:34 And on average about, you know, over roughly 80% of the time, it's better to just buy now, just to put that lump sum into the market. Now, of course, you're like, well, isn't that riskier? Well, yes, it generally is because if you buy a low-cost ETF or index fund or something, and then it crashes, yes, you're going to feel bad that like, oh, I could have got a better price, whatever, et cetera. But the only time, here's my counter to that, the only time when averaging in beats buying now is when you're averaging into a falling market.

Starting point is 00:23:00 And so most of the time, the time when this actually works, it's the time when you're least enthusiastic to do it. Like the markets fall, I imagine, like, you know, it's February 2020, again and it's late February 2020, the market's going down. Then it's down 10% in a day, then 8%, then another, you know, it's going down. And the question is, are you willing to buy while it's going down and down and down? And if you're one of those people that is, then, okay, the average in method could work for you. But for a lot of people, you're going to get scared and then not buy it and wait in cash and trying time and do all these games. And

Starting point is 00:23:27 because of that, you're probably going to still underperform. So that's why I'm like, just buy now. Just get invested now. It's on average you're going to do better. And it's behaviorally, I think, a little bit easier than trying to like buy as the market's dropping. because that's the only time it actually outperforms the other method. Exactly. And it's really, really difficult, obviously, to figure out when the market is going to drop

Starting point is 00:23:47 and try to time that market. And speaking of the market dropping, you have one of my favorite articles on buying the dip, and that's one of my favorite things that you've written. And you go deeper in the book as well on that. Should we or should we not wait to buy the dip when we're investing? So there's two things here.

Starting point is 00:24:03 Holding cash and waiting for a dip is a very bad idea because generally, remember, this is on the data, the data shows this, right? Markets are going up and to the right. They're increasing over time. This is generally true of most, you know, equities, most asset classes. This is what happens. Not all I mean, asset, income producing assets at least, like, you know, equities, reads, things like that, are generally increasing in price over time because of inflation,

Starting point is 00:24:25 a host of other issues, right? So if that's true by holding cash and waiting for a dip, most of the time on average, you look at the data. And I show there's this, there's a whole chapter, I think this chapter 14 discusses this. When you go to buy that dip, whatever threshold you say, I say 10, 20, 20%, whatever, usually you're buying at a higher price than when you could have originally invested. And let me just give you an example and make it a little bit easier.

Starting point is 00:24:44 So actually, roughly five years ago, I actually wrote a blog post called Just Keep Buying, which basically came the intro for the book. So it's literally five years ago to the day when the book comes out, kind of wild, irony. Anyways, I remember writing it. I got a couple comments from people saying, like, you know, valuations are too high. I'm not buying. I'm going to wait until there's a dip.

Starting point is 00:25:00 Let's say this person held cash and just waited and waited. I'm not waiting until there's a big dip. And now when do they get this dip? Three years later, it's March 2020. right and now the market's down let's say they actually perfectly timing i'm giving them this fairy dust of like perfect timing right they perfectly time it and they buy it on march 23rd 2020 when the market was down 33% big dip the biggest dip we've had since 08 they perfectly timed the dips too so that's obviously impossible but let's just say they did it even if they had done that and bought on march 23rd

Starting point is 00:25:27 2020 they still ought to bought at prices 7% higher than what they could have bought in 2017 and that's the example i give because all the people said i'm just going to wait till there's a dip ended up buying at a higher price and the people who just bought and stop trying to time the market, right? Remember, that's assuming perfect time. And there's so much assumptions I have to make for these dip buyers, and they still can't win, right? It's like crazy. And I kind of show that in the chapter 14. I talk about that a bit. So that's kind of why I buy the dips a bad strategy. However, conditional on that, that's chapter 14. In chapter 17, I say, if you're in a dip, conditional, like you're already in the dip, you haven't been saving cash to do it, but you happen to get an influx of cash. Let's say you, I don't know, you

Starting point is 00:26:04 sell a business and by chance the market crashed right then, then yes, buy the dip. Buying the dip is good if you happen to have cash, but you shouldn't wait for it. That's the difference, right? Like obviously buying the dips, it's better because the price is on average lower than if you assume it recovers. It's a really good thing. But the whole premise is you shouldn't wait for it because these big dips are rare. So don't wait for it. But if you happen to be in one, yes, buy one. Like buy the dip. It's a good thing. But don't wait to buy the dip. That's the difference. Exactly. And early on, I can remember. I remember countless times when I started investing, I would just wait for stocks to come down and they

Starting point is 00:26:38 would just keep going higher and higher and higher. And when they finally did come down, it was much higher than I was waiting, just like you're talking about. So I've done that over and over again. I don't make the mistake anymore because now I know what the data says, but I did that over and over again. I think a lot of investors do the same thing. So speaking of dips, let's say there's a recession that hits. And what a lot of investors do in recessions is they start to panic. So how should investors actually invest during a crisis like a recession? Yeah, so I don't think you should worry as much about timing. Of course, during, I think during recessions and things like that, I think the thing you have to worry more about is like your personal life, your job, your income security more than what your investment portfolio is doing, to be honest.

Starting point is 00:27:16 And that's why these recessions actually matter. That's why I'm not saying like, oh, who cares about a dip? Like, no big deal. Like the dips are important because of what's happening in the real economy. Not what's not what's happening to asset prices. Those are kind of a reflection of the real economy, right? So I think the thing to just remember is like on average, Marjorie. markets tend to recover. Sometimes it takes a long time. For example, Japan in 89, it took, you know, 30,

Starting point is 00:27:38 it's basically kind of almost recovered now to where it was. It's basically been 30 years. But yeah, 30 years later, the market hadn't recovered. So there are exceptions to the rule like Japan 89, you know, Greece 08, Russia, 22, what happened this year? It went down 80% in a month. Like, there are cases where certain markets do have these like prolonged periods. You know, even the U.S. had a technically a 13-year period where, you know, from Jan 2000 to roughly like 2013, 13-year. 13-year. period where after, you know, adjusting for inflation and dividends, it was technically underwater, you know? So there are these cases where this happens. But on average, if you're a diversified investor, you have other types of investments, you should be fine because you're not just going

Starting point is 00:28:15 to be in one market the whole time, right? And so like people that talk about Japan, it's very interesting because it's like, oh, but what about Japan in 89? It's like, yeah, that unlucky person that sold their business, but put it all into the market, like I say, you should buy now, right? Put it all into the market right in 89, literally at the peak at one of the most crazy valuations and maybe the history, probably the biggest bubble and the history of asset bubbles, in my opinion, did that, then yes, they would have done very badly. But I even show in the book, if you would just invest it over time to the Japanese market, like, yes, it was not great.

Starting point is 00:28:43 But there are times when you were still above your cost basis. You made a little bit of money, right? So that's kind of the thing. It's not great what happened, but at the same time, like, you could have been okay off, you know, even in one of the worst markets ever just by buying over time instead of putting it all in, you know, at some one snapshot, which is very rare anyways. People don't invest like that. Most people don't just put all their money in and then they're done, right? You're buying over time. Exactly. It's just keeping your emotions out of it, sticking to your investment plan, staying

Starting point is 00:29:08 consistent over time. That's the most important piece of that as well. So you have a whole chapter in the book about when is the best time to buy a stock. So when would you say the best time is to buy a stock? I mean, sooner rather than later. I mean, it depends. Like, do you mean an individual stock? Like, or do you mean a broad basket? I think you should be buying a broad basket. it and I have a whole chapter on this where I talk about why you shouldn't buy individual stocks. And it doesn't even necessarily have to do with performance. It's more to do with like you're, you know, we can get into that if you want. But I think though when's the best time to buy is generally sooner. Because if, I mean, the premise of investing, this is

Starting point is 00:29:38 like always funny to me. Like people like, I'm going to wait for the dip. It's like, the reason you're investing is because you're expecting the price to go up over time. I don't know how long you're expecting to go up. You're expecting it to grow your wealth. Right. So by waiting, it makes no sense because it's like antithical or what I don't know what the word I'm thinking of it's the antithesis of the point of investing, which is to grow your wealth. So you're like, oh, I think this is going to go up and I'm going to wait and then I think it's going to go. It's like, you know, if you think it's going up to the right, which most of these things are, then like, you know, you shouldn't be waiting, you know, to invest. So that's, you know,

Starting point is 00:30:09 I say if you wouldn't wait 100 years, like the simple thought experiment, I said, imagine you had a million dollars you had to invest. And you have two choices. You either put it all under the market now or you put in, you know, one percent of it every year for the next hundred years. What would you do? You know, it's like, well, that's obvious. I wouldn't wait a hundred years. By the time I got due to inflation, I'd lose most of my money, right? So if you don't wait 100 years, don't wait 100 months or 100 weeks or 100 days, right? That's just kind of get in now. That's the simple idea there. And you talked about having a basket of stock. That's what we talk about as well. A lot of times that's the way I invest. And I love to invest in index funds, ETFs, things like

Starting point is 00:30:43 that as well. Why do you think that people should be investing in baskets of stocks? Yeah, I think just because they're diversified and I mean, you're getting the diversification already, it's cheap to do that. And two, you're not going to, I think a lot of this comes down to identity, right? So when you buy like the, like, I don't know, it's the S&P 500 passive index fund, I'm just, let's just talk U.S. stocks for. I know there's international stuff. Let's just do U.S. just to make this simple. When you buy the S&P 500, that's your default, that's the choice. That's the choice that's that most investment, you know, that's said, like, that's the default. And everyone compares it to the default, right? So when you do that, if the market goes down,

Starting point is 00:31:15 you're not going to like, oh, my God, I'm an idiot. Like, you're going to say, oh, the market it's not your fault. It's like out of your control. But when you go and say, you know what, I'm going to have a portfolio of, you know, 50% Amazon and 50% Apple or something. And those are very good stocks. I would have done well over the last decade. But when you go to do something like that, you're now linking your identity and your choice to that. So if that underperforms, you're going to feel like an idiot. And you're going to be like, why did I do that, right? And so you're going to beat yourself up mentally. And there's all sorts of games you're going to play. So I think the simpler thing is like, don't identify with your investments. Like it's not about being right. It's about getting rich.

Starting point is 00:31:46 right? And that's, I mean, that's what I think you really care about. If you want to just, if you want to buy individual stocks for fun, maybe put a small portion in your portfolio, go ahead, be my guest. Like, I think it's great to do that. I think it's fine if you want to get that of your system. But don't put most of your wealth in there because A, you're going to identify with it. And B, you're not going to know if you're good. You might just be lucky. And that's the real thing. And most things in life, you can identify skill pretty easily. For example, if me and, you know, LeBron James went to the basketball court and LeBron James, let's say he wasn't famous, but he saw his skill. You could tell within a minute or two minutes that he has skill

Starting point is 00:32:14 and I don't. It'd be very obvious, right? So, but with investing, that's not true. You know, you, I can pick stocks and you can pick stocks. And after a year, if I beat you, am I better than you? Do you know? You don't know, right? Because I could have just gotten lucky, right? And so that's the difference between investing and like most other crafts is the feedback loop is very long. It might take you five, 10 years, 20 years before you figure out if you're good. And secondly, it's not a game that I think people should be playing. Like, spend your time doing something more productive. You know, just set it and forget it, do a nice passive, easy, low cost index fund and then focus on other things. Or you know you can add value. You don't know if you can add value with investing. Exactly. And you could focus your time

Starting point is 00:32:48 on increasing your income or anything else that we've talked about here because I think 99% of people just aren't willing to do the work that they have to put in to invest in individual stocks. You look at somebody like Warren Buffett who reads 500 pages a day of 10Ks. And so you look at something like that. And it's something where most people don't have the time or the energy to be able to actually do that. They can focus their time where they spend most of it every single day at their job or wherever else to increase that income. So one of the difficult things. So one of the difficult things, for investors is figuring out when to sell. Now, your book is called Just Keep Buying. So is there ever a time investors should sell outside of obviously drawing down for retirement? So outside of,

Starting point is 00:33:24 you obviously drawing down for retirement, what I say, like to fund your lifestyle expenses, that's one of those reasons. Like, I mean, the whole point of money is so you can live the life you want to live. It's not just to acquire assets, just do it. There's no gain here. You're going to win at the end. You know, it's like you don't get a prize or something if you die with more money than being the richest person in the cemetery, right? So besides selling for like your life needs, it's like, hey, I need to do this or that. There's two other times when I think it's okay to sell. One's for rebalancing.

Starting point is 00:33:48 There are cases when you might need to rebalance and like, oh, wow, this asset went up a ton and I need to sell some of it down to kind of add back to get closer to my allocation, I think makes sense for me, right? And so that's one case. Obviously, there's tax implications there. So if you can, I talk about something in the book called an accumulation rebalance, which means instead of selling the asset, like let's say there's asset A and B, and A, let's say had a 60% weight and B as a 40% weight, right?

Starting point is 00:34:10 But now A, because A is done really well, A has a 90% weight and B as a. a 10% and you want to get that back to 6040. So you'd have to sell some of A and then put it into B, right? Instead of doing that, what you could do over time is A starts to get bigger and bigger, you can actually stop putting money into A and start putting money into B to kind of rebalance it back. You're basically buying more of the underweight asset to try and get the weights back into alignment. That's a way so you don't have to sell anything. There's no tax implications. That's the second reason. So outside of funding your lifestyle is number one. Second one's for rebalancing. The third is where I say getting out of a concentrated or losing position.

Starting point is 00:34:44 you happen to like work at a company where you got a lot of stock and something or you bought something in. It's very concentrated now. It's very large part of your portfolio. It's kind of like a rebalance in the sense of like I think you should sell some of that out. Let's say your company IPO. Do you have all this private stock that's now public? I say you should sell some of that to lock up a certain level of lifestyle. And then obviously anything above that you want to let ride, that's fine. But I think you should kind of lock up a certain level of security or a little minimum lifestyle. And then beyond that, you have to figure out what you want to do with the rest of that because I don't think you should sell everything because you're going to have regret. If you

Starting point is 00:35:15 you sell it all and then it triples, you're going to be like, I'm an idiot. Why did I sell the stock in this great company? You're going to feel stupid if you do that. And then if you hold it all and it goes to zero, you might feel stupid too. So you got to just kind of find a good balance that works for you. So I used to be like, oh, yeah, sell all of your concentrated stock. Get out of it. You want to be diversified 100%. I don't think that's necessarily true. And I think I've rethought that as I as I've thought about these types of things. So yeah, concentrate position and losing positions. If you're in something that you're like, wow, this has been losing money for, you know, not just like a couple years or a decade, like multiple decades.

Starting point is 00:35:42 You realize like why am, like, for example, I used to be in gold. And I was like, why am I in gold? Like if you look at the history, like it has from the data, it has 20 year periods where it's underwater. And it's like, even if gold could be a decent diversifier in certain circumstances, I don't mess with it because I know after 15 or 20 years of that, I'd be like, I can't keep doing this. I can't keep doing this thing.

Starting point is 00:36:00 It's not building wealth at all, you know, and that would be a problem for me. Exactly. Those losers are like the example I always give is someone who's a dividend investor. if they're focused on that growing dividend over time, that dividend gets cut, and it just stays cut, and it doesn't grow over time. And they need, that'd be a loser for them to go ahead and sell if that's part of their strategy. So looking within your strategy is the big piece as well. But those are all great examples as well. So Nick, these are questions that we ask all of our guests. I wanted to ask you some of these as well. So what are some of your favorite books that you've read?

Starting point is 00:36:29 So, I mean, if I could, I could give you an investment books, and those are very obvious. I can say, you know, okay, we read William Bernstein. You know, he's got the, intelligent asset allocator. That's great. He's got like the investing for adults. It's like really good investment stuff. Or if we talk personal finance, I could say, hey, read, you know, meet Seth. You'll teach you to be rich. Read Tiffany Alici, get good with money, right? It depends. I kind of need a little bit more specificity there. But I think the thing I want to kind of give out to your listeners is, you know, of course there's a lot of great money books out there. And we can, you know, I can talk about tons of them, you know, Jason Zweig, you know, Morgan Housel got a great

Starting point is 00:37:01 psychology of money or, you know, your money in your brain with Zweig, right? There's so many these great books, I think what you should do is read a lot of nonfiction, but it's not about investing. I think that you can really learn principles in there that end up teaching about other things. I think there's a great book out there, for example, called Deep Survival. And that's about how people survive. But if you actually look at some of the tactics and things in there, a lot of these things can be applicable to investing, right, in terms of how you keep yourself sane and all this type of stuff. I don't want to get into all that, but that's a good book. There's a great data book out there called Nobody Lies, and that's just about like Google Search Day and stuff. And it's

Starting point is 00:37:31 not even that it's related to investing. It's just interesting. I think you need to expose yourself to different ideas. So the thing I would say is like, yeah, read read about, you know, non-investing topics. Obviously, if you're listening to this podcast, you're interested in finance, you probably consume a lot of financial content as it is. So try and diversify your, you know, information diet. So that's what I would say there. And in terms of resources out there, I usually do a lot of reading. I don't listen to a lot of podcasts. I will usually read them if they have transcripts because like that's how I am. I'm not like an audio learner. I'm more of a visual learner. So I do a lot of reading. I read a lot of blogs. I'm on Twitter a lot. So I'm reading blogs and stuff. So

Starting point is 00:38:03 that's a big information source for me. Exactly. And I completely agree with that as well. Reading books outside of just the investing realm or even just outside of the business realm, I've gotten so many ideas from that because I try to read a book a week and I've gotten so many ideas and learn so many things just from outside of that that actually apply to investing in personal finance. So that is definitely something I would recommend doing as well. So this is the big one, Nick, that we ask everybody. What does wealth mean to you? So I think for me, I mean, wealth is really just about like living the life you want to live. And so that's the point of, I think, accumulating this wealth is so you can live life you want to live.

Starting point is 00:38:36 So, for example, I live in New York City. I do not own a car. I'm 32 years old. I've never owned a car. I have a driver's license so I can drive legally, but I've never owned a car. I don't plan on owning a car anytime soon unless I like end up going to the suburb or something. But I may never own a car for all I know, right? So it's one of those things where like I don't care about owning a car.

Starting point is 00:38:52 I don't care about having super fancy clothing, right? But I do like going to restaurants. And New York City is like a great place for that. There's so much food. There's a great food culture here. I'm a bit of a foodie. So for me, don't necessarily spend a lot of money on, I said, on a car or insurance or clothing, but I will go

Starting point is 00:39:07 out and spend probably an exorbitant, what people, most of your audience would consider an exorbitant amount of money on restaurants. My restaurant budget is very high relative to most Americans. And that's because that's what I like to do. That's my life. That's what I like to go out with people and spend time with people. I'm extroverted, and that's kind of my thing. I think the important thing is like figuring out what you want. So for wealth for you is going to be different than wealth for me. For you, I might be like, I like a fancy car. And I don't think there's anything wrong with that. I think there's a lot of people that shame people into material, like, oh, you can't have a fancy handbag. You can't have a fancy car or something like

Starting point is 00:39:34 that. I think that's wrong because not everyone's the same. I think when they say, like, well, the data shows that people like experiences more than goods or than physical goods. Well, yeah, the data is probably showing that because most people are extroverted. Now, take introverts. What do they value? Like, they may value something different than extroverts. They may not value experiences in the same way. Now, I don't know if that's true, but that's just a theory I have that like when you use the average result, the average result may not apply to you, right? So for in my case, I do happen to like experiences more than physical goods. That's fine for me.

Starting point is 00:40:02 So most of my money I'm spent is on an experience that have where I have a memory of it, maybe a picture at most. But I don't have anything I can take with me outside of like, you know, whatever, the calories I had at the meal. So I think it's just about figuring out what you want. And this is a harder problem. This is more of a general philosophical question. It's like someone we've been debating for, you know, millennia.

Starting point is 00:40:18 Like, well, you know, know thyself, right? This is a philosophical question. What do you want out of life? And so wealth is figuring that out, figuring out what you want and then using your money to do that. Exactly. I absolutely love that answer. And it's utilizing it as a tool to have the life that fulfills you. And that's kind of what we talk about all the time in this podcast as well. So Nick, thank you so much for coming on the podcast. Where can people find more about you in your new book? Yeah. So my book can be found on Amazon, Barnes & Noble, Booktopia, a lot of different places. And so it's Just Keep Buying. You can find me there. And in addition, you can find me on Twitter. If you have a question for me, feel free to DM me. My DMs are open. My handle is at dollars and data. word dollars and data. You can find me there and my blog is of dollars and data.com. So any questions you have, feel free. Trust me. I try to respond to every single DM. So I'll try to get back to you

Starting point is 00:41:06 if I can and, you know, be happy to hear from you guys. Fantastic. And we'll link all of those down below in the show notes as well so everybody can go ahead and check those out. Nick, thank you so much. This was such a fun conversation. I truly appreciate you coming on. Appreciate Andrew. Thank you. Thank you. Rosen lasagna, medium power. 15 minutes. Sounds like, Ojo time. Let's play. Feel the fun with Play-O-Jo, the online casino with all the latest slot and live casino games. What you win is yours to keep with no wagering requirements, instant payouts, and no minimum withdraws. Hey, I just won.

Starting point is 00:43:17 Woo-hoo! Feel the fun! Play-O-Joe! Honey, forget about the lasagna. Let's celebrate! 19 plus Ontario only. Please play responsibly. Concern about your gambling or that if someone close to you, call 16-531-2600 or visit conexontera.ca.

The Personal Finance Podcast - Should You Buy The Dip? (Just Keep Buying) with Nick Maggiulli

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.