Nicholas Magguilli (03:34):

But even if you had done that, you still would’ve bought at prices 7% higher than if you had just bought back in 2017. So, it’s one of those things where buying the dip seems like a good strategy and sometimes it does work, but you have to have perfect timing and even then, a lot of times when you buy that dip, is higher than … the dip occurs higher than where you could have purchased originally. So, that’s the first one, buy the dip. I think it’s one of these beliefs.

Nicholas Magguilli (03:57):

Let’s say you’ve got an inheritance or you sold a business, you lot of money and you want to get invested. I always say, just take the plunge and do it. Of course that’s higher risk to do that but generally, most of the time that is the optimal strategy in terms of you’re going to get a better return from that. If you’re worried about risk, you should probably move into a less risky portfolio and just get invested now, instead of sitting in cash forever with inflation, inflation’s very high, you’re sitting in cash, those dollars are losing value. I think that’s another one, is this average and, “Oh, I’m going to slowly wade into the market,” type thing. I generally think that’s not the greatest strategy. So, that’s the second one. When there’s a lot of data, we can get into there as well.

Nicholas Magguilli (04:31):

The third one is maxing out your 401k. I think that’s something that investors it’s almost, I would say almost, universal in the personal finance investing community where it’s like, “Oh no, you have max.” I used to do this too. I used to say this to people, but after running the data, I’m not sure it makes sense for everyone. So, I’m not saying there aren’t cases where you still should max. There are people that definitely should, but I think we just say it as like dogma almost without even thinking, “Is this actually true? Does this make sense for my situation?” Et cetera. And we can get into some of the specifics of that, but those are three big ones. Buy the dip, don’t average in, maybe don’t max your 401k. Think about it, put some considerable thought before you do that. So, those are the three big ones I would say in investing.

Robert Leonard (05:09):

Later in the conversation, we’re going to dive into all three of those a little bit deeper, but the first one, buying the dip, that speaks to me a lot because a lot of new investors will come to me and say the same thing. I’m like, “Okay, that makes so ends. I understand where you’re coming from.” On a short-term basis, if you’re looking at a monthly chart, that dip looks very aggressive, but I always tell people to zoom out a little bit and look at the bigger picture, zoom out to a year or even five years. And you’re like, “Okay, that dip doesn’t even look that bad compared to the short-term chart.” You see people on Twitter sometimes during a dip say, “Wow, the market is at levels not seen since 30 days ago.”

Nicholas Magguilli (05:48):

That’s a joke. The other joke I love, RAM Capital, I love him on Twitter, RAM Capital LLC, says, “The hundred year moving average is looking pretty good, right?” That’s the joke, it’s like you’re investing for a very long time period, the dips are almost nonexistent, so that’s the fun part.

Robert Leonard (06:02):

One of the rules that you have is to focus on income and not spending. You say cutting spending has its limits, but growing your income doesn’t. Find small ways to grow your income today that can turn into big ways to grow it tomorrow. There are two different ways I want to talk about this question. The first is about the beginning of your rule when you said cutting spending has its limits. When I talk about this, I’m often met with contention about how saving money is actually better because it isn’t taxed like additional income is. If you earn an extra dollar, you’re taxed on that, so you don’t actually get that full dollar basically increase but if you save a dollar, you’re saving a dollar because there’s no tax on that. So, what role does taxes play when thinking about this dynamic between saving more and making more?

Nicholas Magguilli (06:47):

Yeah, so I will agree that yes, when you saved $1, you lower your spending by $1, that’s one after tax dollar, versus you increase your income by a dollar, let’s say you get 75 cents of that. Let’s say you have a 25% effective tax rate. So obviously, the math there is clear. The issue is you can only do so much of that cutting spending before you hit a limit, so you’re going to need to grow your income. And as you said, “Okay, well, how do you think about taxes personally?” I don’t think about that at all. And I’ll say why, because do you not want the 75 cents? It’s an extra 75 cents. Do you not want it? Now, we can talk about the economics of that. There’s this idea and economics called the income effect and where it’s like, let’s say your wage right now is $40 an hour. Would you work an extra hour? Okay, yeah. Now what if I put it … let’s say you’re willing to work 40 hours a week, but what if your wage was $40,000 an hour? At some point you’re going to be like, “You know what? It’s not worth it for me to work an extra hour because I make so much money, I’m spending already what I want to spend, maybe it’ll work.” It’s called a negative income effect. At a certain point, you’re going to pull back.

Nicholas Magguilli (07:40):

The same is true in taxes. If the tax rate got high enough, at some point, the marginal tax rate, people would say, “You know what? It’s not worth it for me to work an extra hour.” Let’s say the government took away like 99% of your income after a million dollars, everyone would work to a million and stop. They would say, “I’m never going to work past that because the government’s going to take it all anyways.” Even though yes, that $1 is great or that one cent is great. The government takes 99 cents. So, there is some sort of income effect there that’s definitely happening but I think for most people we’re not even close to it. So, I think that for most people, that argument isn’t really going to hold water, I think. Of course there’s exceptions to that, but that’s my take on the taxes and taxing your extra income.

Robert Leonard (08:15):

Plus like we talked about the dip, you said that if you had waited, you’re actually still buying, even after a 33% decrease, you’re still buying at a rate that’s 7% higher than what you would’ve originally bought. I look at it the same way with this. It’s like, okay yeah, you would maybe save a dollar. And so that’s $1 you saved on an after tax basis. But what if maybe you earn $2 in income on an after tax basis. So, you can still be ahead even after paying the taxes.

Nicholas Magguilli (08:41):

Of course. Yeah, easily. That’s one of those very easy things. I completely agree with that.

Robert Leonard (08:46):

The other piece is not everybody wants this fancy, luxurious lifestyle. Not everybody wants fancy cars, or watches, or clothes, or whatever, but I still think most people would prefer that their life gets a little bit better and money can likely do that for you. So, saving money is not going to necessarily allow that to happen. Whereas if you earn more income, you can still save more and increase your lifestyle a little bit over time.

Nicholas Magguilli (09:12):

Yeah. I talk about this, I talk about this in the book. I’m like, how much can you have lifestyle creep? Which is just you spending a little bit more. As you get raises and bonuses and stuff, and I talk about that, what’s the optimal amount, we’ll get into some of that. I agree, you don’t want to play this game where you’re always fighting yourself every time you reach through your pocketbook. So for me, I enjoy spending my money. I don’t go, “Oh my gosh, that’s another, this or that.” I don’t think that way. And I have to think long term, think about raising your income, that’s the way to get out of this. If you’re starting to worry about money, you need to figure out ways to raise your income over time. It’s not easy, of course that’s not. It’s much easier to cut spending because it’s a lever you can pull now, but it’s a short-term lever versus a long-term lever.

Robert Leonard (09:48):

This part of the book really spoke to me because it’s just a philosophy that I personally believe so strongly. It’s like, I am not a super materialistic person. I don’t care for clothes or watches. I do like cars, but I’m not a materialistic person. But at the same time, I also believe that if you’re going to work your butt off and you’re going to work super hard, why wouldn’t you want to try to live as best you can? So for me, it’s like, I’m not going to work super hard to save more money so that I can have a less life where you could work equally as hard, make more money and also live a better life.

Nicholas Magguilli (10:17):

Yeah, exactly. I completely agree with that. I think there’s a lot, especially COVID I think, taught me a lot about this. Imagine all these people that sacrifice for all these years, and then God forbid, they caught this crazy disease that no one saw coming, or crazy infection and unfortunately they passed away and it’s like, you think about you only get one life to live. I’m not saying you blow and just spend all your money today. Obviously there’s limits this, but it’s about finding balance. I think balance is the key in this discussion.

Robert Leonard (10:41):

It’s funny. I saw this meme on social media. It showed this older couple on a rollercoaster and they were coming down the rollercoaster and they were both sleeping on it. The meme’s caption basically said, “This is why you don’t save all of your money only for retirement and you have to live a little bit now.” I think that’s so true. You can’t enjoy many things in retirement that you can now due to things that involve your age and your health. For me, [inaudible 00:11:04] helped me realize this too. He always says to focus on what you like spending your money on and save ruthlessly on other things.

Nicholas Magguilli (11:11):

Yeah, I agree. This T-shirt, this is Amazon V-neck, I got it for $8, but then at the same time, I live in New York City because I love the restaurants here and I’m like, tonight, I’m going out to get dry age rib eye, I’m going to spend an exorbitant amount of money on meat. But that’s what I like, that experience. For me, it’s restaurants. I’m a foodie, that’s my thing. I don’t spend a ton of money on clothing, or I don’t have a car. I’m 32 years old, I never owned a car. It’s crazy to people like, “How can you never owned a car?” So it’s like, there’s a lot of things about my life that aren’t traditional. But then there’s parts that are kind of exorbitant and that’s my restaurant budget, is crazy. I know, but that’s my life. That’s what I like to do. So, yeah. I’m big fan of Ramit.

Robert Leonard (11:45):

I have different categories, but the same philosophy. I like to eat healthy. I’m big into fitness and health, but I’m not necessarily a foodie where I need to go out to all these pricier restaurants. I don’t really care about clothes. I get almost all of my clothes from Walmart. I get really cheap clothes. It doesn’t matter to me, but I spend a lot on travel and dirt bikes since I race motocross. So, it’s just choosing what you like to spend your money on.

Nicholas Magguilli (12:07):

Yeah, of course. I completely agree with that.

Robert Leonard (12:10):

The second part of that rule I want to talk about is when you said that people should find to grow their income in small ways, so it can lead to big ways to grow it in the future. Break down this idea for us and outline an example as to how this could work in practice.

Nicholas Magguilli (12:23):

Yeah., So an example I can give is, so I’ve been blogging for about five years. I’ll use that example, but we can use a more generic one after. So, I’ve been blogging for about five years and when I first started blogging, I didn’t have an audience, I didn’t really make any money on it. Eventually I started doing Amazon affiliate links, or anytime I talked about a book that I thought was good, I’d just drop a link in there and I’d make a little bit of money on that. So, it was small little things that as I started doing this over time first, I was like, “Okay, I’m going to start doing affiliate links.” Then I started doing partnerships. Then I’ve done a sponsored post or two, those are kind of rare. I started running ads.

Nicholas Magguilli (12:53):

So over time, this thing which was very small and I wasn’t making much money on it now is a significant side hustle for me. That’s something where it’s just like, it’s something I’ve done over time and built it up. Now, you could do that with anything.

Nicholas Magguilli (13:04):

Let’s say you’re starting a photography business, and first you just do a couple shoots for people. Next thing you know, you create a website. Now you have ways to market it more. Now maybe you start hiring photographers and training them, or you start creating a photography course. You can imagine small ways where you can make income, like these one off things where you’re just doing photography shoots and then eventually you can turn that into a business, a brand, all sorts of things where it starts becoming bigger and bigger and bigger.

Nicholas Magguilli (13:27):

That’s just one way to do it, there’s other ways you can do it. Obviously that’s for side hustles and things like that but even in your main job, there’s things where you could do things that can really get you on a path so that you’re making more money. You got to show your value in some way and you get a bigger raise or who knows? I mean, there’s all sorts of ways you can do that. I think it’s just about finding … because it takes a long time. For basically two to three years, I made almost no money on that blog and now it’s making some money on it and it’s decent. It’s a decent side hustle. I think that’s the key, is don’t give up like so early. It takes the long time. So just find something, if it’s a side hustle, find something you love to do and just do it cause you love it and there’ll be ways to monetize.

Nicholas Magguilli (14:02):

Someone just told me recently, there’s a guy that has like one of these Bonsai trees and all he does is he live streams himself cleaning and taking care of these Bonsai trees and he makes a bunch of money on this and he just … because he’s like of the best at it. If you ask me, “How much money could you do making this?” You can’t make much money. The guy makes decent money doing this. Don’t discount your niche hobbies. For all you know, if you’re really into these things, you could become someone that people look up to in this space, you got to obviously create the content though and put into work.

Robert Leonard (14:26):

There’s a podcast called The Side Hustle Show with Nick Loper and he talks about that exact idea of how you could find a niche and just be the best person in that niche. Regardless of how niche it is, you can still make a lot of money. There’s some pretty crazy examples that he shares on the show, exactly like you said. The other piece about this concept that I really like is there’s this other idea that’s one of my favorites, is that it allows you to go on offense. If you start making a little bit of money, you could take that money and go on offense with it. So, maybe in the short term, it’s not a lot of money. You’re just making a little bit here and there but eventually maybe you use that money to buy a real estate deal. Then maybe that provides significantly more income and then you could buy more real estate deals and then that provides even more income. Or maybe you start investing in startups or whatever it is, you could take small income, go on offense with it and use that to generate more income in the future.

Nicholas Magguilli (15:15):

Yeah, I completely agree with that. I think a lot of these things build on each other’s compounding, one thing leads to another thing. For example, I have a book coming out, half of this book was blog post that have basically been refined by my editor. I have edited the philosophy, but these started as things I put on the internet, publicly for free. So, if you’ve read everyone on my blog posts, you’re going to see half of this stuff is things you’ve seen before, certain ideas, but thankfully, most people haven’t read all my blog posts, which is great. So it’s going to be mostly new for most people, which is great. But yeah, so that’s the thing I think about just how that can compound and grow in different ways.

Robert Leonard (15:46):

I’ve heard some financial advice that says people shouldn’t buy things that they can’t buy two of. The advice says that if someone can’t buy two, they can’t really afford it. You say that people should actually use a similar process, buying something twice, but instead of as a measurement of whether or not the person can afford, it should be used to eliminate spending guilt. How can using your 2X rule eliminate someone’s guilt they feel from spending money on themselves.?

Nicholas Magguilli (16:13):

So, a lot of the things I like to talk about and just keep buying are counterintuitive truths. I think there’s a lot of people that have spending guilt or every time they spend money, they worry about it, or they splurge a little bit on themselves, they go to a nice dinner or you buy yourself a nice whatever, a nice car, or a nice pair of shoes, or whatever it is. You do one of these things and there’s so much guilt in the personal finance community about doing that like, “Oh, you’re buying yourself lattes, you’re peeing away a million dollars.” Or, “You’re not working hard,” all this stuff.

Nicholas Magguilli (16:39):

So to eliminate guilt, I think the 2X rule really well because if you want to splurge, let’s say you want to spend $400 on a pair of dress shoes, a really nice pair you want to keep for a long time. Well, take another $400 and invest it in some sort of income-producing asset, whatever, whether that be some REITs, or stocks, or whatever. I mean, there’s a lot of … I’m not trying to give you a specific recommendation. There’s a lot of income-producing assets you can invest in, but you invest another $400 because then you’ll feel like, “Hey, even though I splurged on myself, I took the same amount of money and I put it towards a good use,” whether that’s investing or you could even donate it. There’s a lot of ways you can do this. If you feel like, “Oh, I’m spending too much on myself,” well donate that $400 to a cause you care about, and that’s going to eliminate that guilt. So, you’re not going to feel bad every time you splurge on yourself, you’re going to be helping someone else or helping your future self, whatever. However you want to do it, there’s a lot of different ways you can do this. I think that’s helpful because we’re a society that, and I said in the personal finance committee, does guilt people a lot. I’m just trying to get people to stop being in their heads so much about this.

Nicholas Magguilli (17:32):

I’m saying, “Hey, I’ve looked at the data on this. I’ve thought about this a lot and here are some ways that you can just live a nicer financial life, not worry about money as much.” It’s funny because I write about money. I think about money all the time but at the same time, in my personal life, I almost never think about money. It’s not because I’m super rich. I’m not a millionaire. I don’t have all these things going for me. But at the same time I’ve been able to free myself from always thinking about, “Oh my God, I’m not rich enough. I’m never going to have enough,” and getting out of that scarcity mindset and just not stressing about a lot of these things and getting rid of that guilt, I think is really important for just enjoying your day to day.

Robert Leonard (18:03):

I am the exact same way. I’m not some multimillionaire, I’m not super successful by any means, but I do think and talk about money pretty much all day every day, whether it be on the podcast, or social media, but in my personal life, I just spend a little bit of time on it and don’t really stress about it like you said. But what’s interesting is the personal finance community, like you mentioned, can be a little bit judgmental at times. One of the things they might say is that you need to pretty much save as much as you possibly can. A lot of people post about maximizing their saving rates, but your book talks about how people actually don’t need to save as much as they think. Can you break down that idea for us?

Nicholas Magguilli (18:40):

I’ve just looked at the data on retirees and I think this says a lot. So I mean, the most shocking fact I have is only one in six retirees are actually pulling down their principal. So, if you have a million dollar portfolio for retirement, only one in six are actually pulling … spending that money. Most of them are living off social security and the dividends they get, the income they get from their portfolio, which is shocking to think, what? That’s such a small amount and you’re saying, “What about the people that don’t even have a portfolio?” Well, then they’re just living off social security. That’s not great, but they’re getting by somehow. So, I’m not saying that it’s the greatest lifestyle, but a lot of retirees end up getting to the finish line, they’re there and then they don’t end up spending down their money and it’s wild.

Nicholas Magguilli (19:16):

I especially see this, I’ve worked in a wealth management firm, so I see this, especially with high net worth individuals. The thing we have to really do is get them to spend money. They’re afraid because they’ve been in saving mode for so long. They’ve done it so well, they’re so disciplined, that now to turn the lever the opposite direction, it’s scary and it’s also so psychologically difficult. So, I’m trying to give people the permission, not to say, “Spend all your money, do it,” but just don’t worry so much about how much you’re saving.

Nicholas Magguilli (19:38):

Of course there’s going to be exceptions. If there’s people who are couple hundred grand in debt and they don’t have any emergency funding, those people need help and those people do need to think about their savings, but at the same time, that’s not everybody. So, figuring out what we can do to help people in those scenarios, whether it’s policy, things like that, at the same time, all the people that aren’t in that scenario, I have friends that are much richer than me. They exited from their companies, they got equity in their startups and everything and they’re worried about money. I’m like, “What are you … You’re two years younger than me. Your net worth’s like three or four times mine. You’re worried about money and it’s … ” it’s not crazy, it shocks me really, it does. I think there’s a lot of people out there that are like that and it’s scary. So, I’m just trying to like give people … relax a little. There’s a lot of data on people who die in their 60s … I can’t remember the exact numbers, I wish I should memorize this, but it’s something like the average bequest is like, $175,000, $200,000. In their 70s it’s higher, in their 80s it’s even higher. So it’s like, as people die older, their money keeps going up.

Nicholas Magguilli (20:31):

In the other really cool fact, Michael Kitces did this analysis on the 4% rule. He says, “Let’s say you just took 4% of your portfolio every year and had a 60% of your portfolio. You are more likely to 4X your wealth after 30 years than you are to have any depletion in principle.” So, if you start with a million bucks and you just use the 4% rule on a 60/40, historically, 30 years later, you’re more likely to have $4 million than under a million. That’s how crazy it is. That’s the data right there. It’s like people think, “Oh my gosh, I’m going to run out of money.” No, your wealth’s probably going to keep growing. That’s the crazy part. You’re going to be in retirement and your wealth’s probably going to keep going up and up and up.

Nicholas Magguilli (21:07):

So, that’s the thing that I think a lot of people don’t realize, is just how the upside, that is really available. That’s why I think people don’t need to save as much as they think.

Robert Leonard (21:17):

So, do you think the 4% rule might not be the best metric to use?

Nicholas Magguilli (21:21):

No, I think it’s fine. I think it’s a good rule. It works for a lot of ways. I mean, there’s debates right now because inflation’s high and there’s debates about whether the 4% rule needs to be rethought, especially because bond yields are lower and those are fair arguments and it’s kind of complex. It’s not an easy topic. I don’t even think I’m the expert on this. I would talk to Kitces or someone else on that. 4%’s a decent rule. It’s worked over time and it’s been around for a while. I talk about it in the book and I think it’s a decent proxy just to start and it’s easy. It’s easy, it’s decent, because retirement’s really one of the most difficult problems to solve and the 4% rule is great because it gets at a lot of stuff without having to really do a ton of calculations and life expectancy and projected returns. It just solves a lot of that very quickly and it’s a decent proxy. Now, is it the greatest? No, but I think 4% rule is fine for most people. If you’re just trying to find something and go with it, I think it’s decent.

Robert Leonard (22:10):

Debt can be a very controversial topic in the personal finance and investing world. On one end, you have Robert Kiyosaki, who talked about loving debt, at least good debt, not credit card debt. Then on the other hand, you have Dave Ramsey who says that all debt is bad. As a real estate investor myself, I personally side a bit more with Kiyosaki. Why do you believe that debt isn’t good or bad?

Nicholas Magguilli (22:32):

Yeah, I think debt, it really depends on how you use it, and that’s always going to be … everything’s context dependent. But yeah, if I have to pick, I’m probably closer to Kiyosaki on this as well because … and I really, I think I said this, something like, the people who are best fit to take on debt are the people who don’t need it.

Nicholas Magguilli (22:50):

If you don’t need debt, you don’t need it to, “Oh, I really need this to get this out.” If you could buy a house cash, don’t. That’s the thing, like you’re saying, “Oh, I should.” I mean, there’s people that do it to sleep at night and I know people in my personal life, good friends of mine who just like, “Oh, I had to buy my … I just don’t want a mortgage. It just gives me peace of mind.” Great, do that. There’s nothing wrong with that. But a lot of times having debt is great because inflation. You have that debt and overtime it gets inflated.

Nicholas Magguilli (23:14):

The example I give in the book, my grandparents bought their house in California in 1972 for $27,000. Their payment at the time, I think was like 270 bucks, 10 years later, after all the inflation, because I don’t know how my grandfather’s wages went, but let’s just assume my grandfather’s wages kept pace with inflation. 10 years later in real terms, their payment was cut in half. In real terms, they were still paying $270 a month, but that money had been cut in half due to inflation. So, that’s the real benefit of debt.

Nicholas Magguilli (23:39):

Right now, because we have high inflation, anyone who took out mortgages in 2019, 2020, stuff like that, because this high inflation, assuming their income is moving up with that inflation. It’s great because now their payment’s not moving at all and the dollar’s becoming worth less. You’re paying back in depreciated paper, basically. So, that’s why debt can be really good. Of course there’s exceptions, there’s times when people get too over levered, there’s times when people get way too much credit card debt, there’s all sorts of cases where it’s bad. But I think generally, it’s context dependent, I think it can be really good. So, I don’t think people need to freak out about debt as much as they do.

Robert Leonard (24:10):

I locked in my mortgage on my personal residence back in, I think it was 2020 at 2.2%.

Nicholas Magguilli (24:14):

My gosh, that’s amazing.

Robert Leonard (24:14):

That’s a 30 year fixed mortgage, I just cannot imagine ever paying that off. I have friends, like you mentioned, that are big proponents of paying off their mortgage and I understand that from a psychological standpoint, but for me just from pure quantitative factors, I just can’t pay off a 2.2% mortgage when inflation’s as high as it is. I just don’t lose sleep at night over it.

Nicholas Magguilli (24:38):

Yeah, I agree. So, I think it’s a personality thing. Some people will do that. The book I would rep for that is The Value Of Debt In Building Wealth. That really changed my mindset. I used to be pretty anti debt. And after reading about that, I was like, “Wow, there’s a lot of cool things you can do with debt if you do it responsibly.” Once again, the people that are best to use debt are the people that don’t need it. It’s really a privilege for those who just have assets, that’s really … if you think about it, debt is … Think about what someone like Elon Musk will do where, I mean, he’s since sold stock, but what he used to do, he used to take, “Oh, here’s all of my equity for Tesla.” He would say, “Okay, I’m going to borrow against it.” So, instead of selling his stock, which lowers his equity percentage, and then he has to pay taxes, he just borrows against it and gives his stock as the collateral. So he’s using debt, “I’ll pay 2% a year.” It’s small for him and with inflation, it’s even smaller. So, it’s one of those things where even the ultra rich uses to their advantage all the time.

Robert Leonard (25:29):

I was just going to say, that’s what I’ve heard is one of the quote unquote secrets of the wealthy, is that they’ll a lot of times have no actual active income or anything like that. They’ll take their real estate portfolios or their equity portfolios, use them as collateral and take the debt like you said, and use that as their income pay, 1%, 2%.

Nicholas Magguilli (25:45):

And taxes or lower, yeah because they don’t … The tax is where they get most people. The people who paying most of the taxes are high income people.

Robert Leonard (25:54):

With the stock market having done so well over the last decade, arguably one of the best decades ever. A lot of investors in the market today have never experienced a real recession. There are many individuals wondering if it makes more sense to invest their emergency fund or savings while they save up to make a big purchase like house or a wedding. Why do you believe just keeping the money in cash is the right approach when saving for a big purchase?

Nicholas Magguilli (26:20):

Yeah, most of that is just volatility. There’s way too much risk. If you’re going to be buying something the next two to three years, it needs to be in cash. I know right now, inflation is high and that seems really silly, but look at most of the last 12, 15 years, inflation’s generally low. There are times when it’s high and that sucks that it happens and that means you’re going to have to save … Let’s say you’re saving up for something, you’re going to have to save for an extra month or two. If you’re saving, let’s say you’re saving a thousand dollars a month, you need to get to, I don’t know, let’s say 30s. I’m just going to make the numbers easy. Let’s say you need to get to $36,000. So, you need to save a thousand a month for the next three years to put down a down payment on a house or something. I don’t know, I’m throwing that out there.

Nicholas Magguilli (26:53):

Okay, so you’re saving that up. Inflation’s high. After a really high inflation, you have to save for another three or four months. That sucks. That’s not great, but you just got to move your purchase out a little bit. The flip side is what if you put that in stocks and even though most of the time, I agree you will do better, there are really big risks when it crashes because you could lose a lot of that money. If you really need it, saving for an extra one or two months may not do it for, you may have to save for another year or longer. If you go into a prolonged bear market, it could be even worse. That’s why I say, when you need the money, you to be closer to cash.

Nicholas Magguilli (27:24):

I have a lot of advisors that are in my network and I’ve asked them and they all say cash. For spending two to three years of cash. After three years, you might want to start getting some [inaudible 00:27:33] with bonds or something after five, you maybe need to consider some bonds stocks as well. So, that’s how I look at it based on the data, I’d say under three years, cash. Three to five, you start adding bonds. And then five plus, you’ll start adding stocks. What risk amount, it depends on what you want to do, but … and those are bonds … You don’t have to do that. You can do real estate, there’s other things you can do. I just use bonds and stocks like a less risky versus more risky risk asset, or an income-producing asset.

Nicholas Magguilli (27:56):

So, you can be like, “Oh, I’m going to put bonds.? Or I’m going to do something else. There’s a lot of ways to do it. I don’t want to just say you have to do bonds and stocks. That’s just the traditional assets people talk about.

Robert Leonard (28:04):

You look at tech and the FAANG stocks over the last two, three, four or five years, they’ve done really, really well but if you have been putting your savings or emergency fund into those stocks or companies the last couple years, and then you needed it recently, you’d be in a rough spot on some of those picks. You’re down 20%, 30%, 40% on some of those holdings. Facebook for example, is down 40% percent from its highs during the time of this recording. One of my big holdings Square, is down over 50% from its highs. Even some of these great companies are down significantly. So, if you needed that money now, then it would be really bad timing to access that cash.

Nicholas Magguilli (28:39):

That’s just risk. I mean, if you’re trying to plan for something you know you want … especially like, “Oh, we’re having a wedding on this … ” If it’s a house, you can push it around. If it’s like, “Oh, we’re doing a wedding.” You don’t want to start delaying your wedding because you don’t have the cash for that. That’s not something you want to do. So you got to start thinking about planning and things like that. It’s not great, with inflation, but it’s the safest thing to do.

Nicholas Magguilli (28:57):

For now that’s just generally true and we haven’t had a adverse cash event like, “Oh my gosh, the cash is now worthless or hyperinflation.” If we have that, I think your wedding is not is important is what’s going on in society, if we’re being honest.

Robert Leonard (29:09):

The advice to not buy individual stocks, isn’t new. Jack Bogle, J.L. Collins, even Warren Buffett, and many, many others have said that most people shouldn’t buy individual stocks. However, rarely when this advice is given, is it actually backed by real data and facts. I’m not saying that data and facts don’t exist, but usually when people on social media say you shouldn’t buy individual stocks, they don’t provide data and facts to back up their argument. Since you are someone who studies data religiously break down with data why individual investors don’t know if they’re just lucky when they pick a good individual stock and why most investors shouldn’t do it.

Nicholas Magguilli (29:47):

Yeah. So, how I like to think about this and how I broke it down in the book is there’s two different arguments. The main argument, most people, Buffett, and [inaudible 00:29:55] all these people are saying don’t buy individual stocks. I do think they have some data and that data is basically, you look at … there’s the SPIVA reports, S-P-I-V-A, you look those up on Google and you’ll see that over any five year period, something like 60% to 80% of active managers cannot beat their benchmarks. It’s usually like 75% after fees and everything. Most of the professionals with analysts and all these resources, can’t beat just a passive index fund after a five year period.

Nicholas Magguilli (30:18):

So what it shows is it’s really tough to do. So just by picking a passive index fund, you’re at the 80th percentile. So I’m going to call that the financial argument and that’s the argument most people make. They’re saying, “Hey, you shouldn’t do this because you’re going to make less money.” And that’s fine, that’s argument. That’s what I’m saying, I brought that up. I have to address it because that’s the one most people talk about and that’s fine in its own right. But that’s not the argument I make.

Nicholas Magguilli (30:36):

The argument I make is what I call the existential argument, which is what you’re talking about. The existential argument is basically how do you know that you’re good at stock picking? With so many endeavors in life, you can identify skill relatively quickly. The examples I give is, let’s say, you, myself and LeBron James went out to a basketball court. You would tell pretty quickly, let’s say you didn’t know who LeBron James was, you’ve never heard of the guy, or just a similar LeBron James figure. We go on and play, you’re going to know pretty quickly I can’t play basketball in each can. There’s no luck. I’m not going to get lucky and beat him unless something happens, like he hurts himself on the very first play. There’s no way I’m going to beat him.

Nicholas Magguilli (31:09):

You can tell skill pretty quickly. Same thing with if you’re a computer programmer. You’re going to know, “Oh, does this person know what they’re doing?” Or they don’t know how to run the program. It’s going to be obvious within minutes if someone knows what they’re talking about.

Nicholas Magguilli (31:20):

Well, with picking stocks, you don’t know. The fact is we can go, you and I, Robert, could go and buy … you can pick a portfolio. I can pick a portfolio and we may not know after a month, a year, five years to 10 years, I could just get lucky. I could put my money in Amazon in 2002 and you could have put it in something else and I just held on and I just beat you because I got one lucky pick that crushed all your other picks. There’s nothing you could have done. So, luck can overpower skill.

Nicholas Magguilli (31:44):

So, there’s some data, there was a great paper called I think … I think it’s called Can Mutual Funds Pick Stars or something like that. I can’t remember the exact name of it, but there’s basically a paper I reference in the book and basically they’re asking, “Is there stock picking skill?” They found that they can identify, they bootstrapped and did all these things, which basically means they took some data and they tried to reimagine what the distribution of returns looks like. That’s what bootstrapping means. Basically they said 10% of people have actual skill and that’s the number they pick. Not saying it’s a perfect number. Let’s say it’s 10%, 15%. It doesn’t really matter, but let’s just use the 10% figure.

Nicholas Magguilli (32:14):

So, let’s say 10% of people have skill with certainty and it can be identified. Let’s assume that another 10% don’t have skill and we can also identify that. So, we can identify the best and the worst pretty easily. That means that four out of five people, 80%, you’re not going to know if you’re good. So why would you play this game, pick individual stocks when you don’t even know if you’re good at it?

Nicholas Magguilli (32:33):

Who I’m addressing here, I’m not addressing people that say, “I’m going to take 5% of my money and put it in individual stocks.” I would consider that fun money. You’re doing it for fun. You like doing it, that’s fine. Have a ball, enjoy it. I have nothing against that. I’m talking about the people that have 80%, 90%, 100% of their money in individual stock picks. I think it’s really difficult to do that. I think the existential crisis is you have to look yourself in the mirror every day and say, “Am I actually good at this or am I just lucky?” And you’re not going to know. Unlike almost everything else people out there, doing things, you know you’re good at doing something or not. You have some idea of your skill and your values in most endeavors.

Nicholas Magguilli (33:03):

It’s just really tough for me to recommend that people pick stocks given if you’re not going to know if you’re good. And even if you are good, the best managers … [inaudible 00:33:10] did a study where they found that the absolute best managers will underperform at some point. So it’s like, is that underperformance just a natural lull? Or have I lost my skill that I used to be good and now I’m not? There’s all sorts of questions that you’re going to just eat yourself up mentally over. I’m like, why go through all that? Avoid it all. Be a passive investor and beat the 80th percentile. And people say, “Passive investors have no conviction. Oh, you guys are just … You have no conviction,” [inaudible 00:33:32]. No, I have more conviction than active investors because I’ve seen the data. I’m convinced that me just picking the default option of being a passive investor is going to beat 75% to 80% of people. That is why that’s important for me because I have conviction that just doing that is going to win out.

Nicholas Magguilli (33:45):

The fact is that most of these stock pickers don’t have … They say, “Oh, I have conviction to these companies,” but they could underperform. So, why spend all this time and still underperform at the end of the day? That’s the question I have.

Robert Leonard (33:55):

What I frequently talk about around this kind of idea is it blows my mind that people will graduate college or wake up one day in their 30s or whatever, however old they are, and they’ll feel like, “Okay, I can pick individual stocks today. I’ve never studied finance. I’ve never done any sort of training, nothing, but I can go toe-to-toe with some of the best hedge fund managers, day traders … ” These large people who have just spent their entire lives dedicated to this one thing. And they think they can go a toe to toe with them and compete and win. You just don’t see that in any other field and I think that’s fascinating.

Robert Leonard (34:26):

You don’t see that with doctors, or lawyers, or even accountants, or programming. You don’t see people wake up one day and just say, “Oh, I’m going to go do brain surgery.” When these doctors have committed their whole lives to learning how to do brain surgery. It’s the same in finance, you have hedge fund managers and high frequency traders and all these guys that have spent their entire lives and careers and money on being good at this. It blows my mind that people think they can go toe-to-toe with them.

Nicholas Magguilli (34:50):

Yeah and I think the last couple months coming from late 2021 into early 2022 has illustrated who’s really good and who’s not because you’ve … There’s all these tech stocks, we’re talking about, people are like, “Oh my gosh, I made so much money on Zoom and this and that and Peloton,” and all these stocks are down very badly. It’s like, the round trip has happened. They went, they peaked and now they’re down. So you’ll find out, “Oh my gosh, maybe I’m not as good as I thought.”

Nicholas Magguilli (35:11):

So, if you’re in one of those spaces where you’ve lost a lot of money on individual stocks, I’m sorry that’s happened to you, but maybe it’s a wake up call to just be a passive investor and just do something better with your time. Find ways to raise your income. You’re going to make more money doing that than you are going to trying to play this game. That’s why I recommend people do, do something else with your time. More productive, that’s better suited for your skills.

Robert Leonard (35:29):

It’s interesting for me to even say this because my philosophy has changed so much over the last decade or even more, almost close to 15 years. I started investing when I was 14 and I was entirely all about individual stocks. That was all I believed in. I was like, “That’s the way to go.” I love Warren Buffett. I go out to Omaha. I study him all the time. This is the way. Then over the last, I don’t know, maybe it’s age and I’m not that old I’m only 27, but since I turned maybe 25, so over the last two, three years, I’ve been trending a lot more this passive, index, ETF approach and really believing in it.

Nicholas Magguilli (36:01):

Yeah because if you really think about what’s the S&P 500 index, you have a committee that’s bringing in new companies, dropping … So, it’s not the same 500 companies you’re buying and holding forever. There is some active management, but you don’t have to pay for it, it’s done by S&P. So, it’s really like there’s some of that going on, and it’s really just like, “Oh, these companies are getting bigger,” and they’re adding them in. These companies are getting smaller, dropping them out. So, there’s an active kind of … it’s like a momentum strategy if you really think about it. So, it’s pretty natural and very easy to get into that.

Robert Leonard (36:27):

I was working a part-time job in college at a large credit union. We had an in-house financial advisor who randomly taught me one day about dollar cost averaging. He knew I was a finance enthusiast and was studying it in school. So, he decided to come into my office and teach me about dollar cost averaging because he believed in it. After that, I had always found articles to support my idea that DCA is the best way to go.

Robert Leonard (36:49):

I’m not sure if this was confirmation bias just working its magic, or if DCA is truly the best. But after starting this podcast, I’ve had some guests say they don’t think DCA is the best and that they have data that supports lump sum investing. Your opinion is that no one can beat dollar cost averaging and people should invest as frequently as they can. Breakdown why dollar cost averaging is the best strategy.

Nicholas Magguilli (37:11):

Of course. So, I think the first thing we need to address is when we say … I don’t even know if you just realized it, but you just referenced two different definitions of dollar cost averaging. This is nothing that you’ve done wrong. This is a huge issue in the personal finance and investment community. There are two different definitions of dollar cost averaging, and they mean very different things. So, the dollar cost averaging, the original definition which I think Benjamin Graham came up with, he says, “We’re just buying over time.” Every time, let’s say you get your money in your 401k every two weeks or twice a month, whatever it is and you’re buying, every time. You get the money, you buy right away, that’s considered dollar cost averaging. Every time you get paid, you invest your money, that’s dollar cost averaging.

Nicholas Magguilli (37:46):

But then the dollar cost averaging you just referred to as if someone got an inheritance of like $100,000 dollars or they sold a business or something, and they have that $100,000 instead of putting it into the market right away, they slowly, what I call average in. In the book, I don’t like calling that dollar cost averaging. I call that averaging into the market, because you have the sum already and you’re averaging it in. Versus dollar cost averaging, I think the original definition is just buying over time and buying as frequently as you can.

Nicholas Magguilli (38:10):

So, if you really think about it every time you get paid in your … let’s say you get paid and you invest in your 401k, you’re really doing a miniature lump sum. It’s like you took a little bit of money and you did a lump sum straight into the market, because buying as frequently as you can, that is dollar cost averaging. But really it’s a form of lump sum, your lump summing, but just these little tiny lump sums over time. So when we’re talking about lump sum versus that other version of dollar cost averaging, which I call average in, lump sum’s clearly superior.

Nicholas Magguilli (38:37):

But that just means buy as soon as you can. Generally that pays off because markets generally go up, so you want to get in sooner. I’ve given examples already at the beginning of this podcast, but the data in there is pretty clear. There’s basically an 80% chance that you’re going to make more money if you just put the money in now versus if you wait, or if you average in over the course of a year. So, when I say dollar cost averaging, even God could be dollar cost averaging, that when I’m talking about that, I’m saying market time and trying to pick when to buy dips is less optimal than just buying every single month for forever. So, that’s the whole idea.

Nicholas Magguilli (39:07):

Dollar cost averaging and just keep buying are basically synonyms, but just keep buying has less syllables, so it’s a little bit easier to say. So, that’s the whole I idea. So, I just want to make sure we’re clear on definitions because when we start throwing those terms around, people are talking about different things and not even realizing, and it can be very confusing. I don’t know how to solve this as a community. I’m not going to be like, “Oh, we need to say this.” I can’t make people choose language. I just think we should start saying, lump sum versus average in, and then dollar cost averaging is what you do in your 401k or every time you get paid and you buy. You’re just buying over time. You’re buying as soon as you can. So, the main point is to buy as soon as possible. Buy quickly, I think is the phrase I would use. So, I hope that clarifies my stance.

Robert Leonard (39:45):

Yeah, that’s a really interesting distinction. I guess for me, when I had a lump sum of money come in, I was like, “Oh well, 401k … ” I average in, I dollar cost average in. So, I was like, “Oh, I should do the same thing with this lump sum of money. That works for my 401k. Why wouldn’t I just do this with this lump sum of money?” So, it’s interesting to hear this different distinction and different breakdown.

Nicholas Magguilli (40:04):

Yeah, so I’m saying when you got that big lump sum, you should have put it in right away. So, you shouldn’t have said, “Okay, I’m going to take this money and slowly put it into the market,” because you’re not really averaging in your 401k when you think about it. When you get paid, you don’t say, “Okay, I want to take this 4% of my paycheck and spread it out over the next three months.” No, you put it in as soon as you get paid. So, as soon as you have the money to invest, you invest it. That’s the key. So, as soon as you have the money, you invest it. As soon as you have the money, you invest it. That’s everything. If you got a big lump sum, you sold something, you have a $100,000, get it invested. Take some money, whatever you’re going to spend on yourself, whatever, and then take all the money you’re going to invest and just invest it then. That’s the key.

Robert Leonard (40:37):

Behavioral finance has taught us that most investors are not actually rational when making investment decisions. In fact, most people tend to buy high and sell low, the exact opposite of what we should be doing. Not only should investors actually buy low and sell high, but why should investors buy quickly, which you just touched on a minute ago, but more importantly, sell slowly, to take advantage of markets that are generally rising over time?

Nicholas Magguilli (41:02):

Well, I think the whole thing with selling slowly is, as I said, if markets, as you just said, if markets are rising over time, then by selling slowly, you’re getting out at higher, higher price. If you sell it all now and it keeps going up, you might have a … of course it could crash as well. So, when I recommend people sell things, I think, unless you really need the money, like I need to sell this to lock up a certain lifestyle, or I need it for something then yes, you should sell immediately. But if you have stock options, things like that, sell enough just to keep some base level of lifestyle, I would say, just have some base level of lifestyle. But beyond that, I would say slowly get out of it. Because those assets generally go up over time. That’s not true of everything, but over time, most things go up to some degree. So, selling it slowly really takes advantage of that. So, that’s the big takeaway there.

Robert Leonard (41:45):

I don’t really talk about it a lot here on the podcast or really anywhere publicly, but I was not dealt the best hand growing up. There were certainly people that had it way, way worse than me, without a doubt. My dad was amazing and he did amazing, amazing things for me. But I would say that just generally speaking the hand I dealt, wasn’t great. Because of that, I love the quote that says it’s not the hand you’re dealt, rather it’s how you play your cards. Why is that quote also true for people in investing? Why is saving cash to buy market dips a bad idea?

Nicholas Magguilli (42:17):

So, I think when it comes to how you play your hand and why that’s important is because luck matters a lot in investing. I’m not going to sit here and lie to you and say, “Oh, it’s not going to matter. You’re going to be fine.” There are bad periods, things happen. If you retired in the year 2000, by 2009, you would’ve had a bad decade. Because you retired in 2000, bubble happened, three years of declines, then it starts to come up again. You think you’re in recovery 2007, then 2008 happens, that’s a bad decade. So, anyone who retired around the year 2000, unless they had just a really ton of money or had way more than they needed, could have had rough patch there. So, that definitely happens and so it’s just thinking about there are other things you can do to … information, things are going to happen to you that you can’t control it, but it’s how you react to that information that really matters. That’s true of everything in life.

Nicholas Magguilli (42:59):

I can say something to you right now, Robert, that you may not agree with and you can just be okay with it or you can get really upset and there’s different ways you can even react to it. That’s something to think about. In terms of your question about why shouldn’t people save their cash and buy dips, we’ve gotten into that a little bit. It’s basically just people who are doing that, you’re holding that cash, expecting some big dip to happen. I just think the data shows that big dips are rare and even when they’re happening, you’re going to be least likely, you’re going to be least enthusiastic to buy during these crashes. You’re like, “Oh, I want to get a better price.” You’re going to wait until it’s even lower. A lot of times you’re not going to be able to time it properly and then it might just rip back upward and then you’re left in the dust.

Nicholas Magguilli (43:29):

March, 2020 is a perfect example because it happened so quickly and then it was over within five months from the bottom. We’re already at a new, all-time high. It was so fast that people had no clue what hit them. It was a perfect example of why doing that type of strategy is not optimal.

Robert Leonard (43:42):

Warren Buffett says that we should be investing when there is blood in the streets. Typically, there’s blood in the streets in times of trouble, or when the markets are crashing, or there’s a recession, or maybe even a pandemic. Why are market crashes not something to be afraid of, rather they’re actually usually buying opportunities? How do people survive and thrive during market crashes?

Nicholas Magguilli (44:01):

The funny thing is, I just said don’t save up cash to buy dips because they’re so rare. But in the event that you just happen to have cash, you happen to have something happen where you have extra investible cash and there’s a dip, it’s probably one of the best things you can ever do. Now, a big dip, that is.

Nicholas Magguilli (44:17):

The reason for this is just simple math. If you think about every X percentage decline requires a larger gain to get back to even. If you have $100 and it goes down to $50, you just decline by 50% to get back to even from $50 to go to $100, you need $100 gain. So, the gain’s even bigger. So, as long as you assume that markets generally recover and I think they generally do, this is not true of every market like Greece right now is still down bad from where it was in ’07, ’08, Russia’s down 80% in the last few months and it’s like, will it come back? I have no clue. This could be an existential thing for them.

Nicholas Magguilli (44:49):

There are exceptions to this rule, but if you’re diversified, that even if you have one that goes to zero, so to speak, you’ll have other markets where you can make money. As long as things generally recover and you believe in the long-term progress of humanity, civilization, economic growth, then I think the economics make sense. If you’re buying at a 50% discount, you can have a 100% gain. The question is how many years is that going to take? It takes one year who doesn’t want 100% annualized return? Everyone, I would’ve. Raise your hand, everyone wants that, right? Even if it’s two years, okay, to annualize return, it’s not exactly … I’m just going to use this linearly, this is not the exact math, 100% over two years isn’t 50% each year, but it’s close, it’s probably like 40 something percent because it’s compounded on itself. Yeah, what if it takes three or four or five? The bigger, the drop, the bigger your annualized returns are to the recovery year.

Nicholas Magguilli (45:32):

So if it takes one year, it’s 100% return. If it takes two years, it’s kind of like 50% return. Even if it takes four years, you’re looking at 25% annualized returns. So, even if you bought it that 50% dip and you waited four years, when you bought all those dollars in expectation, if they did recover in four years are getting roughly, probably 32% to a 25% annualized return, which is great, which is double the market average. So, who wouldn’t want that? So you see that once you just start looking at the math, it’s obvious like, oh my gosh, dips are such an opportunity as long as you assume there’s going to be recovery. If you think that things will eventually recover, then they’re huge opportunities.

Robert Leonard (46:04):

One of the parts of your book that is uncommon advice is where you say that people shouldn’t max out their 401ks without considerable thought. Why do you believe, against the common narrative, that 401ks possibly shouldn’t be maxed out?

Nicholas Magguilli (46:18):

I mean, there’s of course there’s cases where it makes sense to max. If you’re in, look, for example, you’re in a high tax state now, you’re going to be in a low tax state in retirement, taking advantage of that different tax arb, where you’re like the state income tax is very high and then in you go into a place with zero, that’s a huge arb and you got advantage that you should take advantage of. So yeah, I think the issue is when people are thinking about maxing out their 401k, they’re not thinking about, “Okay, what are the fees involved and how much benefit I’m actually getting by locking up my money until 59 and a half?” So, I actually calculated this and on average and I do this for a Roth 401k. I’ll explain why in a second, because I only care about you avoiding the capital gains. The difference between choosing traditional and Roth is a separate discussion, we can get into that in a moment, but just on the Roth, it’s like the post income tax. We’re not looking at the income tax, we care about. We only care about the capital gains, because the whole point of a 401k is you’re avoiding the capital gains that you have to pay in a brokerage account.

Nicholas Magguilli (47:06):

You’re only getting, I say … The estimate I give is like 73 bps. So, let’s just say 70 bps, 0.7%, which is not a ton. It’s not nothing, but it’s not a ton. Now, that assumes similar fees between the 401k and the brokerage account. A lot of times your 401k all in is going to have a lot of extra fees. For example, if you had a 1% fee in your 401k, for your funds or just the 401k fee itself, you’re now the benefit above the match, I think everyone should go to the match. For the record, everyone goes to the match. The benefit of all the dollars above the match is now negative if you have a really high fees in your 401k, because think about it. You’re paying that 1% fee to get a 70 bip, 0.7% tax advantage. It doesn’t make sense. You’re losing, it’s negative tax alpha.

Nicholas Magguilli (47:44):

I think a well managed brokerage account can actually be … there’s a more ability there. You can move the money around, do things you want to do. I’m not saying people should never max out their 401ks. There are exceptions where it makes sense. For example, if you’re in New York or California and you have a really high state income tax, but you plan on retiring in, let’s say Florida or Texas, where there’s no state income tax, there’s things like that where you’re avoiding a higher tax now with a traditional 401k and then paying a lower tax when you pull the money out and retire.

Nicholas Magguilli (48:08):

So, there are exceptions, but even York has exceptions. They allow a certain amount of money for you to pull out of your 401k, tax free. Really you need to talk to a tax advisor for this stuff. But I just think the issue is max out your 401k is like dogma across the entire industry. I think I’m the one of the first people to like, “Is this even right?” We go back to first principles. Does this actually make sense? I analyze the numbers and I’m not so sure for every one. I think a lot of people don’t even know their 401k fees and they just max without even thinking about it and they haven’t dug into the numbers. So, I’m saying really spend time on this decision because I regret doing it because I maxed lot and it’s great. My retirement savings look great, but now like, okay, I don’t have the money for example, for a down payment because I put all that money to my retirement.

Nicholas Magguilli (48:46):

So, it’s one of those things where … and I can’t really get that money out now without paying penalties and fees and I know you’re saying, “Well, you can pull out 50K for down payment.” There are exceptions to this and there’s all these exceptions and I get that. But for me, I think it’s just dogma that’s just thrown out there without actually considering whether it makes sense for a lot of people. So, spend time on it. I know it’s annoying to look through documents and do all that stuff, but really you got to spend time on it and figure out if it’s right for you. So, that’s my whole point, is just think about them a little bit more.

Robert Leonard (49:10):

Such a great point, because this is just one of many, many, many, many concepts that people in the financial world that are considered experts, will throw out there and people just accept it’s gospel and just expect that it’s 100% true. I mean, maybe it’s true for some people, but financial advice is very rarely uniform and almost every single person has a different situation that needs some sort of tweak.

Nicholas Magguilli (49:32):

I agree and that’s what I try to do with the book is just attack everything with data and say what’s the truth? Obviously there’s always exceptions and there’s a lot of nuance in a lot of these arguments, but I’m just trying to say what’s actually going on here? I care about trying to find that truth, whatever it is. That’s what I care about, ultimately. So, I’m not so sure maxing out 401k makes sense for a lot of people, especially those who are high income and young. That money could be used for other things. I think there’s a lot of high income, young people that are just like, “Oh my God, max, max, max.” I’m just like, “You need to think about that a little bit before you do that.”

Robert Leonard (50:00):

Lifestyle creep and comparing ourselves to others makes it extremely difficult, if not impossible, to ever be satisfied financially. Why do you think people will never feel rich, but actually think that’s okay?

Nicholas Magguilli (50:11):

So, I think people never feel rich because they’re always themselves to other people. The example I gave in the book is Lloyd Blankfein, who’s the ex-CEO of Goldman Sachs and he was interviewed and he said … Remember he’s a billionaire, this guy’s a billionaire. They said, “Are you rich?” He’s like, “Oh I’m not rich. I’m just well to do. I’m just well off. I’m not super rich or anything.” I mean his argument seems outlandish, you’re a billionaire. How can you say that? But when your best friend is David Geffen and Jeff Bezos and people have, 10, 100X your wealth, you’re not going to feel that rich. When you can’t afford a $600 million super yacht and they can, you’re not going to feel as rich.

Nicholas Magguilli (50:44):

So the argument I’m going to make here and the argument I make in the book is like, “Okay, if you had $93,000 in net worth, you’re in the top 10% of the world.” I would consider you rich if you’re in the top 10% of the world. I would consider you a rich person relative to humans. Relative to all humans, you’re rich. Now if I say, “Okay, oh you have $100,000 net worth. Oh yeah, you’re rich.” You’re saying, “Nick, but that’s not fair. You can’t compare me to people all over the world. You can’t compare me to … ” I don’t know, I usually use the example of a farmer in Bangladesh or some person in, I don’t know, India, whatever, these different places in the developing world of people … where there’s extreme poverty, like, “You can’t compare me to them.”

Nicholas Magguilli (51:18):

Well, guess what? Lloyd Blankfein probably thinks that you can’t compare him to us, regular people. He’s like, “You can’t compare me to those regular people. You have to compare me to the Jeff Bezoses and the David Geffens of the world.” His argument is obviously more outlandish than the argument that you and I might make like, “Oh, you can’t compare us to these people all over the world,” but it’s the same argument. We’re just cutting hairs. We’re like, “What is rich really?” Where do we stop the line? So, a thing I like to say is like, I identify as rich. Globally, I identify as rich and I think you have to think that way because if you don’t think that way, you’re going to always be on that treadmill and you’re always going to be trying to get for more.

Nicholas Magguilli (51:50):

I’m not a millionaire, as we’ve talked about before. I’m not a millionaire. I’m not financially free where I can never work again. I still have to work, but I still identify as a rich citizen of the world. I have to think that way because if I don’t think that way, I’m not going to understand my privilege. I’m going to keep chasing money and maybe I’ll never be happy. So, I think just realizing how well you have it off relative to others is a great way just to have some perspective. That’s what I say. I don’t mean to say I’m rich, like I’m boasting. It’s not like that. It’s a mindset so you can psychologically better understand money and better understand how you think about these things and how you feel about yourself. So, you’re not always chasing it, you can escape the prison that I think a lot of people are in and that’s what I’m trying to help people do in the book.

Robert Leonard (52:29):

I’ve never been one, like you, to really say, “Oh, I’m rich.” I don’t go around to people saying, “Oh, I’m rich,” or my parents, or anybody like that. But it’s interesting because I think my philosophy without ever really having thought about it, or even verbalizing it, I think I feel the same way as you do. I think inherently, I know I’m rich against the rest of the world, but I don’t necessarily publicize that. So, it’s interesting, without me even having known this concept or thinking about it’s just inherent in how I’ve felt about money and how I try to always be humble and grateful for what I do have.

Nicholas Magguilli (52:59):

Yeah, yeah. I don’t go around saying like, “Hey, hey, nice seeing you. My name’s Nick, I’m rich.” I don’t say that, it’s obviously … that’s crazy. I’m just saying, I’m saying it in a way of you have to think about yourself and identify where you are in the world. We’re all in bubbles and I realize I’m in one of the biggest bubbles and I have to constantly remind myself of the bubble I’m in, otherwise I just will never see the truth and I’ll always be blinded and I’ll feel poor my whole life. It’s just silly, it’s so silly to me. So I’m like, just have some rational objective standard of truth that you have to live by and realize how well you have it because then … There’s a lot of stuff I want to do with philanthropy eventually and I’m not there yet, but I’m almost there. That’s the thing where I start to think about that stuff and that for me is something I really care about eventually.

Robert Leonard (53:40):

Yeah, it’s interesting. I felt the same way without ever having realized it. I never thought about this, but I’ve just felt that way even without knowing it. So, great concept. Before we close out the episode, I want to give you a chance to tell the audience where they can go to connect with you and learn more about your work, pick up your book, anywhere that people can connect with you.

Nicholas Magguilli (53:59):

You can find me on Twitter, my handle’s @dollarsanddata, just all one word, dollarsanddata. Or you can find me at my blog, ofdollarsanddata.com. My book will be available on Amazon, Just Keep Buying, if you’re interested. Obviously, it’s a data-driven guide to personal finance, but I promise it’s very accessible. There’s a lot of stories, it’s an easy read. You’re not going to be overwhelmed with spreadsheets in numbers and stuff like that. There obviously are a bunch of numbers and charts, but I think it’s done in an accessible way. It’s a very easy read. So, that’s always been my goal, is to make it easy. My grandmother can even understand it. Not all of it, but she understands most of it. I think that’s the key. If she can read it and be like, “Oh, I get that.” I was like, “Perfect, okay, I’m at the right level there.” So yeah, but I appreciate you having me on the show and just want to thank you guys for your time, for everyone who’s been listening. I really appreciate your time, thank you.

Robert Leonard (54:41):

I’ll be sure to put a link to your website, your Twitter, your book, everything that you’re working on in the show notes for anybody that’s interested in checking it out. If you’re watching the video version, I’m holding up a copy of this book. I was able to give it a read. I love the book, so I recommend you guys go and check it out. Nick, thanks so much for talking to me.

Nicholas Magguilli (54:58):

Appreciate that.

Robert Leonard (54:58):

Appreciate it.

Nicholas Magguilli (54:59):

Yeah. I appreciate that, Robert really appreciate you taking time for that. Thank you.

Robert Leonard (55:02):

All right guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (55:09):

Thank you for listening to TIP make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.