The Pomp Podcast - #945 Nick Maggiulli On Proven Ways To Save Money And Build Wealth

Episode Date: May 4, 2022

Nick Maggiulli is the Author of "Just Keep Buying", COO of Ritholtz Wealth Management, and writer of the Newsletter "Of Dollars And Data" In this conversation, we discuss some of the contrarian investing views that Nick holds. Some of these views include why you shouldn't max out your 401k, why you shouldn't buy the Bitcoin dip, and why your birth date may be more important than any investment decision you make, ======================= Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. No extension required. Store, manage, and grow your portfolio, get NFT & multi-chain support, and more.    Download the Brave privacy browser at brave.com/Pomp, and click the wallet icon to get started. ======================= The Pomp Podcast is powered by BetOnline.ag, the world's largest sports betting, casino, poker and horse racing website that accepts cryptocurrency for wagering.   BetOnline.ag gives you the ability to use Bitcoin and more than a dozen altcoins to make deposits and withdraw your winnings. There are no crypto transaction fees, and processing is instantaneous and secure.   Visit https://promotions.betonline.ag/pomp and use PROMO CODE: POMP100 to receive a 100% matching bonus on any crypto deposit.   BetOnline.ag is available in nearly every country around the world, making it the top global gaming destination for crypto users. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now, let's kick this thing off. Nick Maggiuli is the author of Just Keep Buying, Proven Ways to Save Money and Build Your Wealth. He's also the Chief Operating Officer at Ritz-Holtz Wealth. Nick and I had a great conversation. In it, we talk about why maybe you shouldn't actually max out your 401k, why when you're born may be more important than any investment decision you make. And Nick breaks down a number of other data points that will surprise you and educate you. I really enjoyed this conversation with Nick and I hope you guys enjoy it as well. Before we get into this episode, though, I first

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brave at brave.com slash pomp and click the wallet icon to get started. Today's episode is sponsored by the Bitcoin 2022 conference. Bitcoin 2022 is the largest Bitcoin event in the world that takes place April 6th through the 9th in Miami Beach, Florida. All four days will be jam packed with exclusive content, exciting announcements and an incredible lineup of Bitcoin speakers, artists and leaders. Day one is industry day for enterprising Bitcoiners who are looking to build a business or career within the ecosystem. Days two and three are general conference days featuring speakers like El Salvador president Nayib Bukele, CEOs like Michael Saylor, Elizabeth Stark, Jack Maulers, Adam Back, and hundreds more. The conference

caps off on the fourth day with the world's first and largest Bitcoin music festival, Sound Money Fest, headlined by rapper and fellow Bitcoiner Logic, featuring artists Kay Flay, Moe, Royal, and The Serpent, Apache, Asadi, and more. Stay tuned for the upcoming lineup announcement last year's conference sold out and this year's is on pace to be three times larger so make sure you grab your tickets before it's too late visit b.tc slash conference to learn more again that's b.tc slash conference to learn more ticket prices increase on january 14th use promo code pomp for 10 off and i will see you in miami anthony pompliano runs pomp investments all views of him and the guests on his podcast are solely their opinions and do not reflect the

opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. And Nick is here with us now. So Nick, how are you? Doing good. How are you doing? I'm doing fantastic. How do I pronounce your last name? It's Majuli. The two G's like the Giuliani sound. It's the same for the J sound. So Majuli. So you'll laugh at this. My last name is Pompliano. No one ever gets it right, which means that I can shamelessly ask folks, how do you pronounce your name? Because nobody gets my name right either, right? So we're all in the same boat.

Yeah, I know. It's the Italians out here. All right. Let's let's maybe just start with like your perspective on personal finance and on financial markets. I think what's very interesting about you is that you take a data driven approach and there's a whole bunch of things that most people, I would say, hold as truth or hold as these like religious almost perspectives on financial markets. and you've been able to time and again, either disprove or kind of shed further light on why maybe it's not completely the only way to think about it. And so what is your process? Like, do you find things people say and then go look at the data? Do you start with the data and then come to conclusions and then compare them? Like, what's that process look like? I don't say it's a little bit of both. Sometimes I just like, I'm like, you know what,

why don't we actually check this? Is this actually true? For example, one of the big points out there is like, oh, you should max out your 401k. And so I'm like, okay, well, let's see like how much of actual benefit do you get for maxing from going like above the match? Right. And then I see like, Oh, you're getting like 70 bips a year, 0.7%. Most 401k plans are something like 50 bips in fees. So really after like the all in fees, you're getting 20 bips a year to lock up your capital till you're 60. And I'm like, is that really worth it? Like 20 bips, is that worth it? And so like, once you start to question just like a lot of the things that we, it's kind of like the Elon Musk type of idea, going back to first principles. Like I love that

idea because it's like, we've been told so many things, like basically, you know, I would say 10 out of 10 personal finance experts will tell you to max out your 401k. But if you actually, when I run the numbers, I'm like, I'm not sure that's the best decision for everybody. So it's just kind of going back to first principles and saying like, what's actually true, what's not true, right? Versus what the media tells us, right? So go back to this for a second, because I think this first, let's just start off real hot. This violates every single thing anyone's ever been told by a financial advisor, which is they do get the advice, max out all of your retirement. And your argument from the data is that there's only a 0.7% advantage every year

from doing that. Explain what that means. Where do you get the 0.7% a year from? So that particular analysis, I'm comparing a Roth 401k to just having that money in a brokerage account and just managing it well. You're not buying in and out all the time. You're just buying a hold over a long period. And so you're basically avoiding capital gains. That's the one thing. If you, that 15% capital gains compounded over a lifetime, that's going to end up being like 0.7% a year annualized, right? That's the difference we're getting. Now, technically you're like, well, what if I use a traditional or a versus Roth? There's all, it gets a little bit more convoluted there, but like no matter what, you're going to have to pay income tax. We know

that like at some point, you either pay it at the beginning with a Roth or you pay it later with a traditional, right? When you're in retirement. So assuming those rates are the same, they won't be necessarily depending on a lot of factors, but let's assume those are the same. The only thing I care about is the capital gains tax, which is the second tax, which is what you avoid by having a 401k versus having it in like a brokerage account, a taxable account. So I'm just like looking at that difference. And I'm saying like, how big is that? Like if I took a, took, put the same amount of money in every year and did that for like 30 or 40 years. And I said, look at the end, like how much more money do I have? And like that difference. And that difference is about like

0.7% compounded, you know, all those equal, but that's assuming no difference in fees. It's assuming the same funds, everything is assumed to be the same. But once you actually look like 401ks have fees and you don't get to choose your investments. There's only a certain set of options you have, right? So when you take all that into account, the benefit's even smaller in some cases. And some people have to pay 1% a year in their 401k, right? It's like if you're paying over 70 bps in your funds, you're actually getting negative alpha for everything above the match, right? Think about that. It's just not doable. So it doesn't make sense to me. So when you think about that, you find this data point, right? And you're like, hey,

maybe this isn't exactly as clear cut as most people want it to make it seem. What do people go in and do where there is an advantage? Like, do you have data in terms of like from a retirement standpoint, are there specific structures that they should actually look at where the math seems to be a little bit more in their favor? Well, IRAs are much better because you can pick your investment options, right? So if like that alone, if you can pick your investment options, you can pick lower cost stuff. Now, if you have low cost stuff in your 401k, it's basically the same as an IRA. That's one piece of it. The other thing is like with the 401k, like you're putting that money in over time. And like, because you can't pick the

investment options, that's a piece of it. That's a little annoying. The other thing people can do is like, you can, if you manage it well in a brokerage account, like, I don't know if people know this, but for example, and a single individual, you can pull out 40 something thousand dollars a year. If you have no other income tax rate is zero. Right. And then if you have like, even when the standard deduction, it's like 50, 50 grand a year and tax rate is zero on capital gains. If you have a couple, you can pull out a hundred grand a year and assuming you have no other income, tax rate is zero. So like, think about that, like a brokerage account that's well managed, you can be pulling out a hundred K a year with no tax. So in that case, like a 401k

would be even worse, right? So like, that's kind of the process I go through. I'm like looking at this and I'm saying like, is this, does this make the most sense for people? Yes or no. And so that really depends, right? In certain cases, it can also make sense. Like for example, if you're in a high tax state now, and you know, you're going to be in a low tax state in retirement, it does make sense to probably max because you're going to be avoiding those in a pre-tax retirement account. because you're gonna be avoiding those high taxes now and then paying the low taxes later. So that's kind of the,

there's different ways to think about it though. So you can pull out of a brokerage account $40,000, $50,000 as an individual, as long as you have zero income without paying any taxes on it? Yep, that is a true statement. Now, as long as you have no other income, only your only income is your capital gains.

Let's say you have a million dollar portfolio and let's say it's paying you 5% a year to make the math, you get 50 grand, right? So it's paying you 50 grand a year in income, tax rate is zero. You have no other income though. If you have any other labor income or anything else, then you're going to start paying taxes on it. But like, tax rate is zero. So you're like,

why? You're like, why do you need a 401k when you can put into a brokerage account? And if you just grow it big enough, like getting that yield, and then you just don't pay tax on it. Like that's the current law. Of course, the law could change, but that's the current law. So yeah, it's fascinating. One of the things that is definitely a theme of these conversations is just like, these rules are applicable to everybody, whether you're a billionaire, or literally, you know, you're on unemployment, right? Every single person, these rules are available. It's just difference of knowledge and then also the ability to execute some of these strategies. But that's something that, you know, once people know about it, they can go execute it themselves,

obviously check with an accountant, et cetera. But another idea that you've got that I think is fascinating is this whole idea of like buying the dip may be suboptimal. And I think it really gets at this whole question of like, if I have a pot of money, should I just put it all into the market today? Or should I try to dollar cost average over time? And I know you've done some work on this? Like, how do you maybe just like frame the question that you're trying to actually answer? And then what is the answer? Yeah. So let's use a more like ridiculous thought experiment, right? Let's say you had a hundred million dollars and you have to like preserve that purchasing power over the next hundred years. You have two options. You either get it all

invested right now today, or you put in $1 million a year for the next 100 years. So I know you already know the answer to this, right? Like, why would you wait? Why would you put in a million a year for the next hundred years? Inflation is going to eat you alive, right? Like I'm, I'm very, I don't like holding cash. So as a result, like it's obvious that you should put it in immediately. We'll take that general idea and generalize it down, right? If you wouldn't wait a hundred years, you shouldn't wait a hundred months. You shouldn't wait a hundred days, right? Like that, because generally, you know, prices go up and to the right for asset classes over time. That's not true of every market all the time, but for most markets,

most of the time, that's what happens for at least income producing assets. So because of that, you're not going to want to wait. And I've tested this in so many things, like putting the money in now versus waiting and putting in overtime. And this is true. I've done this with gold. I've done this with Bitcoin. I've done this with international stocks. I've done this with the US stocks, etc. And all of them, it's better to like, on average, like 70 to 80% of the time, it's better to start and invest now instead of waiting for dips and things like that. Because usually when you wait for these types of dips, the dips will happen. But by the time that dip comes down, that's at a higher price than you could have bought originally. I think one of the best examples of this is,

I actually started talking about this in early 2017. And people were like, oh, the market's too overvalued. I'm not going to buy. And since then, the market's doubled. But even if you had bought at the bottom in March 23rd, 2020, you still would have bought at prices like 7% higher than if you had just bought in early 2017, which is kind of shocking. Even if you could perfectly time the market and get the best dip possible, like three years after when I first started talking about this, you still would have bought at higher prices, which is kind of crazy to think. But that's kind of how dips happen, right? Dips are rare and big dips are incredibly rare. Yeah. And it goes to this whole idea of like, just like time in the market is more important

than timing the market, which is, you know, a really cute saying, but, but there is a ton of truth to this. And I think that that data kind of backs it up. If somebody is invested and they continue to grow their assets, another data point is this idea of only one in seven retirees are actually dipping into the principal six out of seven are actually living off of whether it's investment gains or yield? What's going on there? Yeah. So they've asked all these retirees, okay, are you actually selling down your principal? So let's say you have a million dollar account or even a hundred thousand, doesn't matter. Are you selling down your principal in a given year? So a good portion of them are living on less than their investment

gains and social security. Another portion is living just off their investment gains and social security. And only one in seven are actually using all their investment gains or social security, and they're starting to sell down their assets. So it's one of those things where we talk about this massive retirement crisis and all this is happening. And of course, don't get me wrong, there are people who are not in great positions, right? I'm not going to deny that. However, to say that there's this massive retirement crisis, it just doesn't come through in the data. I think one of the most interesting pieces is people think they're going to hit retirement and run out of money. It's like, you're actually more likely to just keep getting richer. And my

favorite data point is actually some research done by Michael Kitsies. And he shows that whatever, let's say you have a 60-40 portfolio. This is historically, I don't know if it's going to be true today, but like historically, if you had ran this 60, 40 portfolio, you're purling 4% a year. You're more likely to four X your wealth than have below your principal after 30 years. So if you start with a million after 30 years, you're more likely to have 4 million. If you're following the 4% rule than to have less than a million. So like retirees just keep getting richer and they don't, I don't think they realize that. So like your spending goes down and your wealth keeps growing. And so like people just keep getting richer and richer. And so I think it's,

there's a lot more positive upside surprises in retirement than on the downside. So that's kind of my counter to a lot of those arguments. So this is interesting. And I don't know if you've done this work yet or not. But what is the number that somebody would have to get to as a like, you know, pot of money, a portfolio value, etc, where they could essentially employ the same thing, but rather than wait till they're 65, if they could just get to the 4%, they would end up actually being quote, unquote, sustainable through the rest of their life. Is they're like a magic number or a percentage or something that, that you think is, uh, once you get to this metric, if you can live on 4%, you're golden and you would never have to work again.

Say I don't, the 4% rule. I mean, they only tested over like usually 30 year timeframe. So if you're like, Hey, I'm 35, can I do that? Like probably not a better rules called the crossover or is like, okay, once your investment returns can like pay for your spending. So if you're spending five grand a month and you're earning five grand a month from your investment returns, you probably can be okay there. But there is just vol. You're going to vol. At some point, your assets are going to decline. And if your income is not sufficient to overtake that, there's going to be vol. So really, you have to get lucky. I think if you're 35 and you have five grand, let's say, in investment returns every month, and your spending is five grand

and your spending doesn't move, but your investments keep going up, you could get lucky and go through a path where even with a decline in the future, you can be retired the rest of your life. But I think you're going to have to have a little bit of a buffer there for the ball. Like that's the only thing I would say. So crossover rules, what I would say. And so I can't give you an exact number because it's really dependent on your spending. It's always dependent on spending, right? So that's everything. Yeah. One of the things that this reminds me of is I think in March of 2020, there was an analysis done kind of after the fact. And most of the people selling in March of 2020 on the retail side were the older demographic, mainly because the theory

at least was in 2008, 2009, they saw, you know, uh, prices crash. And then it took three, four, five, six years till, uh, we got back to, uh, kind of that, that price level. And many of them just given that they're older, don't have as much time and they're like, Hey, I'm not going to wait five, six years. Like, you know, screw it. I'll take the 20% haircut on my assets and just get me out of the market. And I've got enough to live for whatever, obviously given the intervention in the market and it came flying back, that was a really bad decision. Uh, but maybe talk a little bit about like psychology mixed with the inability to have a long time horizon. Like if you're just older, it changes the way that people seem to invest. Yeah, it definitely. Cause like, yeah,

well, someone once asked me like, what do you, how do you can, how do you define a long-term investor? And I was like, Oh, it's just like time horizon. Right. But like you're right. At some point, once you're 80, 90 years old, you don't have that time horizon in the same way. I think the only way to kind of think beyond that is to say like, Hey, am I investing for someone else, like the next generation or something? And so if you start thinking of your time horizon, a much longer way, then you can still, I think, make more optimal decisions. Of course, if you're constrained by how much money you have and you're like, I'm going to run out of money, then yes, your time horizon matters a lot more when you have less sufficient assets. That's where you're

going to have to say, hey, I have to sell to get out. I'm going to take this 20% haircut because I can't afford a bigger haircut in the medium term, basically. I think that's what's leading to that. Yeah. It's fascinating because what you essentially get is you get people who maybe their entire life didn't actually time markets right like part of the reason why they built wealth was because they just kind of bought assets and and uh and let them uh continue to accrue value but at some point your mentality changes and uh i don't know if there's like a good rule like how do you control human emotion right it's like a question as old as time but that ends up being more important almost than like what asset you bought 20 years ago and just haven't sold till

today yeah i agree i think a lot of that that's especially true of spending like if you imagine you've been your whole life you're a diligent saver you're saving money over you know 30 40 50 year career and then all of a sudden you have to go into like spending mode that's why people don't spend down their principal it's the same thing like they just don't do it and like even with like required minimum distributions which is like the government requires you to take a certain amount out of these non-taxable accounts by a certain age by like 72 or something if you don't like a lot of these people end up taking this money out and they're supposed to spend it right or something with it and they just end up reinvesting it so it's like a very funny thing

where like you're basically just forcing the government the government's forcing to pay tax just so you can reinvest it again. So, um, it's, it's just interesting. Yeah. When you think about this idea of, uh, people's relationship with money, um, I do think over the last maybe 15 years, again, it's a narrative. I don't know how true it is, but it feels correct, which is, uh, if you were middle-aged, let's say during the financial crisis, you got kind of punched in the face. Uh, and some people literally went insolvent. Some people just pay this heart, right? Uh, you then become a little bit less aggressive from an investment standpoint, even though in hindsight, Hey, you should have gotten right back into the market and benefited from kind of the recovery.

You just, I lose money in the stock market. I don't want to do that. And then by the time that you finally started to invest, it was 2015, 16, 17, maybe even 18. And then you run right into the teeth of the pandemic and COVID-19 in 2020. And again, the older folks, they're the ones who are selling people who are a little bit younger. Maybe they weren't selling, but they're probably not as aggressive. Like, it just feels like there's been a lot of this kind of external shock to investors. How do you guys see, you know, kind of across the financial industry, people worried about like, when's the next big shock, because they already experienced one. And there's like almost like a recency bias of like, these are going to happen all the time, versus

like, there actually is truth that they should be prepared for those things. Well, I mean, the only way to prepare for that type of stuff is diversification, right? And like risk management, That's what matters. If you're 100% stocks and you shouldn't be 100% stocks, that's a problem. Or if you're high stocks, high crypto, there's a lot of risk assets out there and you can set your risk level. But yeah, for me, it's like, you're right. This stuff's always going to happen. If it wasn't 2020 with the pandemic, it's going to be something else. Right now we have the Russian Ukraine crisis and the supply chain crisis going on. And my colleague, Michael Badnick, likes to say there's always a reason to sell. And I always remember that because you can just look at the

headlines and there's always a reason to sell. You can try this right now. Go Google stock market overvalued and then put in a year, like 2012, 2013. You will find plenty of articles that tells you why the stock market's overvalued. 2010, you could have said the same thing. There's always a reason to sell. There's always a reason to get out. And so all those people that had problems in 08, 09, et cetera, the reason they had problems is because they sold. And I'm not saying that the market's going to go up forever. And obviously there's going to be some event where some possible event, you know, centuries from now that like pot that causes, you know, the end of the United States or who knows, right? Anything like that can happen. But if we can't invest based on

that type of like crazy outlier thing, right? It's like the great depression happens that your portfolio is the least of your worries, right? We have to worry more about apocalypse, canned goods, guns, all that stuff. So like, it's almost like an upside call up is like a call option, right? It's like, if things go well, you're gonna get rich. If they don't go well, it's not going to matter anyways, right? So that's kind of how I look at investing, right? At least if you're in of broad based like global index fund of some sorts, right? Or you own international stocks, US stocks, you own crypto, you own like all these different things in some sort of mixture that fits your risk profile. I also think a lot about the bears, like the perma bears, you basically have

to be betting on the inability for the United States economy to be durable over any, you know, 10 plus year time period. And I think that that makes people sound really smart. But like, historically obviously has been a horrible investment strategy uh and then also like how many people really believe that forget the investment component like is it more so they're just trying to time markets and if we are in this i don't know 50 plus year bull market uh you know everything just goes up into the right it's just to your the point of your book like just keep buying right like like how do you think about this idea of like just keep buying i mean you wrote a whole book on it right so like like is that literally the the uh kind of secret to this is like manage

the risk, manage your cash position. And then other than that, just get invested and just chill. Yeah. I mean, a lot of it, a lot of it is just like accumulation over time. That's a big piece of it. And I do talk about this more in the personal finance sense, like income matters, obviously I can say, just keep buying, but if you don't have any income to just keep buying, it's just not going to work for you. So that's one piece of it. Um, but yeah, I mean, I think with the permables, like one of the, or sorry, perma bears, one of the things there, it's like, it, you know, it's seductive to be like contrarian. Like, trust me, like when I'm, when I come out here with an argument saying like, I don't max for 401k, that's contrarian.

And I feel good about it. Like, and I like going against the crowd because I believe in my analysis, right? Just like those perma bears believe in their analysis, right? And so I think that's a thing. And of course it's seductive and it's cool. And like, and at the end of the day,

it's the, you know, there's that phrase, like, do you want to be right? Do you want to make money? And right. And so like, I do the most naive thing. Like, I don't know enough about business. I don't know enough about this stuff. I just own like a gold portfolio.

And I let all that, you know, I like kind of let the economy do its thing. I let businesses do their thing. And I focus on doing what I'm good at, right? and that's like data stuff. And I focus on my data stuff and I don't sit here and try to analyze balance sheets and figure out whether this business is going to beat that business. Cause I don't think it's the best use of my time. So I think most investors and stock pickers, people like that should spend way less time doing that and should be doing the thing they're

probably best at doing. And so that's my, my, my whole argument is find your edge and just focus on that instead of like trying to go and compete with people who are actually better than you at all these things. Right. I was going to ask you what's in your portfolio. Like when you think about your kind of investment strategy? Is it just low cost indexes or like, how do you think about investing? Yeah. So mostly low cost. I would say 85% of my portfolio is income producing assets as I define them, which is like low cost indices, which is mostly, you know, US stocks, international stocks, REITs. I have some bonds. I mean, even though bonds are doing terribly. And so I'm not a big bond fan, especially now. And if they go negative yield, I'm even less, you know, like

with negative yield in bonds, I'm not into that. And then I have, you know, a smattering of like, Bitcoin, Ethereum. I have some physical art and then I have some private investments, which I mean, yes, those private investments are technically US stock, but because they're kind of private and small, I kind of put them in a non-income producing asset in my head. So that's kind of how I break it out. And so I think it's really just about risk and stuff. I could have more of those other things, but I think on a risk perspective, you have to think about volatility and all that. And so I try to have some things that are non-income producing and then something, and most of it is income producing to some degree.

Got it. And then when you think about just given that you've done so much on the data, like when you think about managing income expenses and investment, is there like a formula that you try to at least adhere to in terms of ratios or like how much of income every year you want to go to investing? Like, how do you think about that stuff? I don't do that. And I kind of discussed this in the book. I might, I mean, my advice is going to sound very, like I copped out, but it's, it's truly the only way I think you can do it is just save what you can. And so it's almost like an overflow, right? So in certain times, like I've saved 40% of my income and sometimes I've saved like 4% of my income or even less. Right. So I think what you have to do, because incomes are like more volatile now, like I bet, I think back in the fifties when like all the savings advice and stuff was coming out, like there was like a two, there was a one income household, like, you know, maybe the husband worked, the wife stayed

home. It was very stable, easy pensions. Now we have two income households. People are doing gig economy stuff. So income's far more volatile. And I think to have a fixed savings rule makes no sense. If you only save 20% of your income always, I don't think that makes sense. I think there's going to be times when you have really high income and things are going well, and you should be saving way more than, let's say, 20%. And there's times where you might lose an income stream or something and you need to save less. So I'm more of the like, hey, live your life and don't guilt yourself as much. And just when you can, save more. And when you can't, save less. Like kind of just do it based on like that. That's the only way I can do it. That makes sense for me. And so I don't and I think it's also, as I said, less of a guilt trip. And I think we guilt each other too much to like, oh, you have to save X percent. I think that's really tough to do.

One of the things it reminds me of is it feels like the advice that maybe your or my grandfather or grandmother received was great advice at the time, like save, save, save. You can save your way to financial stability. I doubt that that's good advice now, just given this whole idea of inflation and kind of the way the world works. And so what did your grandparents do, though? They told you and I like, hey, save, save, save, save. And so there is almost this like the passing down of knowledge. it's not so much that it's quote unquote bad advice it's just bad advice for the current environment and you almost have to retrain the way people think about uh their financial life

because the environment changed and therefore you have to do something different i'm assuming that you guys see this all the time when talking to folks is like oh i was always told x during my life uh but that's not necessarily the right thing that they should be doing today yeah i think the the main thing and this is why like even in the book just keep on i do not give you a specific recommendation. Like you need to have 25% this or 30% of that asset. I don't try to give specific recommendations because it's not about me telling you what to do. It's kind of me kind of teaching you how to think about the problem. And you're exactly right. Like I say like, yeah, you should have some bonds for risk reduction. Right. But what happens if bonds are negative yielding?

Like then it's like, I don't even know if you should own that. You should just hold cash as risk reduction. Right. Like I think it's always contingent on what's happening in the world. And you have to realize like things are going to change over time. I wish we can say like set it and forget it. But the problem is the world changes, right? You could have said it and forgot it like 20 years ago, but now that yields are dropping on bonds, it changes how much of that you hold, what type of risk you want to take. And so I think that's kind of the important takeaway here is like, how do you think about this? And just the framing is important. So I agree with you on that. Yeah. Let's talk Bitcoin. Obviously, the folks who get super excited about kind of the

the digital world, crypto, et cetera, uh, tend to be a little bit younger. Uh, but I think more and more of maybe the wall street crowd, even the older crowd, uh, are starting to pay attention because of things like inflation and various things that are happening in kind of legacy finance world. Where are you on Bitcoin, uh, and crypto like it, don't like it. What have you done? Uh, so I own some of it and I, I think getting, I think getting off zero is important because like right now, I mean, you know, maybe 2017, you're like, okay, we had this one thing and it was like a one trick pony. But after it kind of came back again, I said, you know what, I was wrong on this. And so I recommend people get off zero. But I do think you have to think about in terms of

risk management perspective, I think more than 5% is like really risky for some people. And it's really tough. And so I don't know, I don't know how people hold more than 5% personally. So I have like probably three or 4% crypto. And it's tough for me to like, usually I would say just keep buying with everything, even crypto, but because it's so volatile, like I would had 2% in Bitcoin. And then it ran up to like almost 10% of my portfolio because it just, and so I had to rebalance down a little bit because like, it's just doing so well. Right. So it's one of those things where like, it's not an income producing asset unless you're staking. And we, I don't want to get into that. It's like a bigger discussion. Um, but generally it's not an income producing

asset. So like, I would say like, have some get off zero, but like, I wouldn't have a large percentage because the swings are so large. And I think unless you're really prepared for those types of risk swings, it can be really difficult for you. So, I mean, honestly, like, you know, I'm not trying to hear to pump my firm or anything, but like, we have like a crypto product and it's like, it's basically an index fund. And that's what I would recommend. If I could create a perfect product, it would be like some sort of index fund of crypto. And that's what I try to get at. Right. It's like, I care about indexing. I just want to own everything because I may be wrong on Bitcoin. I may be wrong on Ethereum, but like, I think something in the space is going to do well.

There's going to be some use case and we're still trying to figure that out. So that's kind of my take on crypto. Yeah. I remember when you rebalanced and of course, like elicited the, the two schools of thought, right? Some people are like, Oh, rebalancing is amazing and everyone should do it. And the other school thought is like, you idiot, you sold all your crypto, like whatever. Right. And so like maybe using that as, as one example of this debate of rebalancing, like, how do you think about when you would rebalance versus not? And is it just based on percentage of the portfolio or is it kind of more like intuition and gut feel? Yeah. So normally I rebalance just like on a calendar year basis, but like,

I mean, I watched Bitcoin go from 8,000 to like 52, like pretty quickly. And I was like, okay, like this is like, you know, and I didn't sell all of it. I kept, I kept half of it. Right. given like, I just wanted to move my allocation down. And so I was like, this is wild. And I just sold some of it. And of course, did I tell, I told you I rebalanced in the replies, but in the main tweet, I didn't. So it's just going to get more engagement by me just saying like, Hey, it's something crazy and making people think I'm like bearish or something and nothing, there's no bearish or bullish. It's nothing to do with, I'm just like, yo, the price raised, you know, the same thing would happen if us stocks doubled, like tomorrow I would be selling down us stocks

because like, as in terms of an allocation, that's too much money. I would have to sell down my us stocks. Right. Even though I'm obviously a big fan of us stocks. So it's one of those things where I'm always trying to keep things in balance to each other to some degree. So that's kind of my takeaway there. That makes so much sense. The book that you wrote, one of my favorite parts of the whole thing is actually just on the back cover. And I always tell people that whenever you see a book, don't read the front cover and the back cover because it's all just their friends pumping their book or whatever. But Jim O'Shaughnessy said, investors new and old will benefit from Nick's practical approach to investing. And what I found fascinating about

that is in one sentence, it hit on two key themes that were really important. The first is in finance, everything is made so complex, but this idea of just like practicality and actually being able to implement things. Let's start there with just when you think about that, how important is it to have a plan and actually execute it, you know, with like perfection and super disciplined versus it's more of, hey, thematically, I want to follow this strategy, but I don't need to be, you know, every Tuesday at four o'clock, I go and I buy stocks and almost have this like super regimented approach that some people may find unsustainable. Yeah. I think the takeaway there is like, you know, we're not Jim Simons. We're not managing billions of dollars. And if

you are managing billions of dollars, you kind of have to have that discipline because those little basis point differences will make a difference. But for you and I, like, I mean, I don't, you know, I'm not going to talk about how much you're managing, but it's like, for most people, we're not managing enough money where that actually makes a dollar difference, right? You're like, oh my gosh, I'm going to spend all this extra time and how much more extra money you're going to earn from that, right? Like think about the number of hours people spend, trying to beat the market. Let's say you had a $10,000 portfolio and you got a 10% return, that's a thousand bucks, right? But let's say you spend all this extra time, 500 hours to get a 20%

return. That's great. If you can sustain that over time, that's going to pay off. But what's an extra 10% on $10,000? A thousand bucks. That 500 hours would have been better spent if you just had a part-time job or something. You know what I mean? So it's one of these things of how much does that actually matter being perfect? And for most people, it doesn't matter until you have a lot more money because that's where that benefit actually, that couple of basis points will add up if you have a lot more money. So in the short run, it doesn't matter. It could in the long run, but yeah, I say, don't worry so much about being perfect. That's why I don't give exact percentages and recommendations because you're never going to be perfect. Even when you

have the quote optimal portfolio, when you solve it using like a linear optimizer, where you go back and find the highest return per unit risk portfolio in any given year, like something like one in four of your assets is going to be underperforming. So you're always going to feel like you're not doing perfectly, even when you do have like, quote, the perfect portfolio for a given time period. So it's just games we play in our head, I say, just get close enough and just kind of shoot for a general direction. I think the thematic idea is better than trying to be perfect, because you'll never be perfect. Yeah, that makes a ton of sense. I got two last questions for you. The first is new and old Jim mentioned, which makes me think about there's

timeless investing advice. And then there's advice that's existed for a while that's absolutely horrible in today's environment. How do you filter through what is the timeless investing advice for versus what should be addressed or updated in the short term? I think things that need to be updated are things based on, I guess it's just because there's new asset classes coming out. There's new information about, as I said, bonds, the yields have changed. So things that were true, like a 50-50 portfolio could have made you a lot of money and did really... That was when the 4% rule was created. It was done with a 50-50 portfolio. I think now the 4% rule is really tough with 50-50, especially with

inflation where it is and where bond yields are. So I think you have to adjust a little bit based on kind of what's happening in the current environment. That's what's important. But the things that'll be timeless is like your timing strategy, right? You should not have a timing strategy. You should just buy as soon as you can, as soon as you're able to invest, just buy, right? That's like probably the best strategy. Of course, there's more risk there. But in the cases where you're like, oh, I should have averaged in, like when the market was falling, you're not going to want to average in. When you're seeing the market crash, you're going to be like, I'm going to wait it out. And then you're probably going to wait too long. So that's the

thing. And even if you get it right, even if your whole strategy of like, oh, I'm going to average in now, maybe that works now, but in the future, like on average, it's not going to work over the long run. So over a long period of time, just in getting more invested sooner is going to be better. So I think of things like that, that are timeless. And I try to make this book as evergreen as possible. So I had to be like specific enough to be evergreen, but also vague enough such that I can't give a specific recommendation because there's no one recommendation that's going to work forever. Yeah. Obviously very difficult to do, but you did a great job of it. The last data point that i want to talk about which uh maybe will help people just chill out a little bit

uh when it comes to uh trying to optimize all the the minutiae is uh if you had beaten the s&p 500 by five percent of the year from 1960 to 1980 so the 20-year period between 1960 1980 you outperformed the s&p by five percent you would have made less money than if you underperformed the s&p 500 from 1980 to 2000. And so this idea of like, you could outperform or underperform, but some of this just may be your returns are derived by like, when were you born? And like, what's the time period? Explain one, just like, how do you think about this? And like, does any of this actually matter that we're optimizing for on kind of the edges? And like, literally, we just were, you know, fortunate enough to be born in a time where stocks went up into the right for, you know,

15 years, and like, we should just say thank you and move on. I mean, yeah, it's one of those, my little catchphrase is don't pray for alpha, pray for beta, right? And it's like beta runs everything at the end of the day. Because if all the markets of beta is just the market generally, markets are moving up, that's great for everyone. It's a good time. But yeah, you have to think about how do you counteract that? You have to diversify, you have to plan, you have to have emergency fund, things like that. Because yeah, we might just go through a bad period and there's nothing you can do in the short run. I would hope on average over longer periods of time, these things time to average out. So for example,

1960 to 1980 looked bad, but then you got 1980 to 2000 right after. So even if you had a bad decade or two, that decade after it did really well. And I'm not saying that's always going to happen where there's always going to be this mean reversion, but that's happened so far and maybe that'll happen again. I don't know. I mean, international markets haven't done as well over the last decade. Does that mean they're going to mean revert? I have no clue. I mean, it could maybe not happen that way. So the main takeaway is just try to be diversified, try to plan where you can and then just you know you got to roll with the punches like that's how the world is but there's not much we can do at certain points i uh i couldn't agree more uh nick for those uh

who are just tuning in wrote the book just keep buying proven ways to save money and build your wealth act smarter live richer which is frankly what everyone is trying to do uh he's got a murderer's row of uh of uh recommendations and reviews here all five stars by the way of course uh Morgan Housel gives five stars uh he's probably tired of getting beaten up on the internet by uh Brent Beshore uh but those baby photos man he wrecked him uh I've I've watched for the last couple of years as those two have uh have uh friendly debates over uh various things that it cracks me up every time um where's the best place to send people to buy just on Amazon I dropped the Amazon link in here but is there any uh anywhere else that we should send folks

oh that's on amazon barnes and noble if you're in australia booktopia there's like all sorts of like retailers out there harriman house my publisher whoever so awesome so anyone who uh who's interested uh i just dropped the uh the link in again or uh or you can go follow uh follow nick on uh twitter what what is uh your dollars and data there's a dollars and data yep yeah that's a uh don't give that one up that's a pretty good i'm sitting on that one don't worry it's prime real estate. All right, buddy. I appreciate you, uh, you coming on. I think you've given a lot of folks things to think about, uh, from not necessarily, uh, blindly maxing out the 401k to, uh, to also just keep buying as the, as the book argues. Uh, so thanks so much for taking the

time to do this and we'll definitely have to do it again in the future. Yeah. Thanks mom. Thanks for having me on. And if anyone wants, uh, you can feel free to DM me on Twitter. I try to answer every DM. So thank you. Awesome buddy. All right. Sounds good. Talk soon. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to palmscryptocourse.com

to learn more, and I'll meet you guys for the next episode. Thank you.