People struggle in almost all aspects of their lives with exceptions of course. The primary area they struggle with the most in their lives is finances. You may have heard some rags to riches stories as well as riches to rags. How do maintain the finances? Does savings really work? How are the dynamics of finance changing across the world? How you can use the correct knowledge of personal finance management to build Wealth and retire early? Nick Maggiulli’s latest book “Just Keep Buying” has the answers for you!

Nick Maggiulli is the founder of “Of Dollars And Data” where he shares how you can make better financial decisions using the best information available. He is also the Chief Operating Officer at Ritholtz Wealth Management. He is passionate about personal finance and his latest book “Just Keep Buying” published in India by HarperCollins Publishers, can really help you deal with financial crunch if you have it in your life. Let’s dive into our conversation with the author himself.

The Importance of Saving and Investing

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We personally feel that saving and investing is a key to building a secure financial future. Going by Nick’s point of view on this, he believes that saving is much more important to build wealth. He says, “Saving is important because, without the ability to save money, you will never build wealth regardless of how good your investment returns are. If you don’t have a lot of money invested, your ability to save will be far more important than what your investments do in the market. As a result, you must save (and get that money invested) if you want to build wealth.”

Another point here is that if the people are really looking forward to building wealth or not. Some are impulsive buyers who go on a spendthrift on impulse. Nick says that focusing on the right things is important to building wealth. “I think the most important thing in personal finance/investing is figuring out how to best use your time. I think there is plenty of time in most people’s lives to build wealth, the question is whether they are focusing on the right things. I discuss this in-depth in ch.1 of Just Keep Buying and it’s the framework I use to guide all of my financial decisions.”  

I think most people will never feel rich because as they gain wealth they will join new social circles where they will encounter people who are richer than everyone they knew previously. This cycle never ends.

-Nick Maggiulli, Just Keep Buying

Why Using Cash for a Big Purchase is a Wise Decision

Usually, for a big purchase like a car or a house, or a commercial property, people rely on credit. Nick says that using cash to make that big purchase is a wise decision in the long run. He says, “Though inflation in the U.S. is high right now (>8%), cash is still the best asset class to use when saving for a big purchase that will occur within the next few years. The reasoning is simple—cash has generally fluctuated less in value than stocks and bonds over a shorter time period.

The issue with saving in stocks, bonds, or some other asset class is that these other asset classes are more volatile. This means that their prices fluctuate, therefore, you may end up having to save longer to get to your target amount.” We listened to him intently and nodded in response.

The Effect on the Prices of Stocks

The financial markets have seen a downfall during the recent 2 years and we wanted to know whether a reasonable and appropriate return is feasible at present or not. Nick responded quickly. He says, “I guess the question comes down to what is a “large and appropriate return”.

For my personal planning, I forecast 4% inflation-adjusted returns from a diversified portfolio going forward. This is below the 7% long-term inflation-adjusted return of the U.S. stock market, but my portfolio also contains income-producing assets other than just U.S. stocks. Is this conservative? Yes. But it is the return that I think is reasonable going forward. This doesn’t imply other numbers aren’t achievable, but I’d rather be conservative than wrong.”

I don’t know the future of crypto, so one should be cautious here. My investment philosophy is a regret minimization framework. Own the amount such that if it goes to $100k you won’t feel like an idiot, but if it goes to $0 you won’t feel that bad either.

-Nick Maggiulli, Just Keep Buying

The Feel Rich Philosophy

People have a tendency of feeling rich over their peers which we believe everybody has once felt in their lifetime. As per Nick, he goes with the Never Feel Rich philosophy and there is a chapter also in the book dedicated to this. He says, “I think most people will never feel rich because as they gain wealth they will join new social circles where they will encounter people who are richer than everyone they knew previously. This cycle never ends. As a result, the only way to feel rich is to compare yourself to yourself. Compare yourself to where you were in the past and you might just be able to break this cycle.”

The Future of Crypto and Option of Rebalancing

As the youth is more inclined towards investing a part of their income in Cryptocurrencies, Nick says that one must be cautious while doing so. “My position on this has always been that cryptocurrency should be a small portion of your total assets.

I have 2% of my investable net worth in it, but I don’t believe anyone should ever go above 5% due to the volatility. If you don’t believe me consider the fact that Bitcoin is trading below $25,000 as I am writing this after being above $68,000 less than a year ago.”

He continues, “I don’t know the future of crypto, so one should be cautious here. My investment philosophy is a regret minimization framework. Own the amount such that if it goes to $100k you won’t feel like an idiot, but if it goes to $0 you won’t feel that bad either.”

Also, we wanted to understand the rebalancing of the investments as it helps you to assess the returns you are getting as per the expectations. He says, “Yes, I think rebalancing should be done periodically. There is no right answer to “periodically” but I do it once a year for ease of use.

There are different ways to rebalance your portfolio, but I like doing something called an accumulation to rebalance where you continually buy the most underweight asset in your portfolio to try and get it back to the target weight.

For example, say you have a simple 60/40 stock/bond portfolio. After a year, your stocks have gone up and now it’s a 70/30 stock/bond portfolio. Instead of selling stocks to buy more bonds in rebalance, you could instead make all of your new purchases be 100% bonds until the balance of your portfolio is closer to 60/40 again. Of course, this requires that some are still accumulating assets, but it is much easier from a tax perspective (since no selling is required).”

Personally, Nick loves to exercise, listen to music, and find different ways to relax. He believes that everyone is different so finding what works for you is more important than copying what works for someone else. We learned about personal finance and investments a great deal. We thanked him for his time and we recommend you all to check out his latest book “Just Keep Buying” to know more about how savings and investments can help you build wealth.

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Read more stories in Storizen Magazine June 2022 issue featuring Nick Maggiulli here.

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